Health Insurance Online
Phone Icon
Call now to speak with a Licensed agent (866) 954-1892

Insurance Type:

How to Insure Your Income: Residual Disability Income

Residual disability income benefits are triggered by simple loss of income. In the technical language of the policy: loss of pre-disability income due to a disability caused by accident or sickness.

The basic question becomes: Has the insured person suffered a loss of income? as opposed to Is the insured person unable to perform the duties of his or her job?

If the answer is yes, then the person is entitled to a benefit in proportion to the loss of pre-disability income. In essence, the residual benefit is a long-term partial disability benefit. It can be defined as:

the ability to perform some, but not all, the duties of one's occupation and, as a result of disability, the insured's earned income is reduced by at least 20 percent of pre-disability income.

Under this kind of policy, as long as you are partially disabled, you receive a benefit in proportion to lost income. And this partial payment lasts throughout the policy's benefit period -- even if that benefit period is to age 65. This proportionate benefit is a percentage of your total disability income benefit.

In other words, if you suffer a 30 percent loss of pre-disability compensation, you are entitled to 30 percent of your total disability benefit.

Example: Mary has a residual policy with a 30-day elimination period for total benefits and a 90-day qualification period for residual benefits. After 30 days of total disability, Mary would begin to receive total disability benefits. Assuming she was still totally disabled after 90 days, she would then be eligible for residual benefits. At this point, if Mary was suffering a total loss of her pre-disability income, she would continue to receive 100 percent of her total disability benefit. However, since she has now satisfied the qualification period, she would be eligible for proportionate residual benefits in subsequent months. If Mary's policy had contained a 30-day EP and 30-day QP, then 30 days of total disability would satisfy both periods.

Many companies offer residual policies without qualification periods. The elimination period doubles for the qualification period. Thus, when a residual policy has a zero-day qualification period, satisfying the elimination period makes the insured eligible for total or residual benefits.

When a policy has no qualification period, days of total disability and/or residual disability will satisfy the elimination period.

Example: Murph has a residual disability policy with no qualification period and a 90-day elimination period. After injuring himself with a ball-peen hammer doing some home improvements, Murph is totally disabled for 40 days, followed by 50 days of partial disability. The elimination period has been satisfied by the combination of 40 days of total and 50 days of partial disability. Murph is eligible for policy benefits beginning on the 91st day of his disability. The residual benefits will take the form of 100 percent of the total disability benefit, or some other proportionate benefit relative to the loss of pre-disability earnings.

If you have a residual disability policy, your pre-disability income will be used in the calculation of residual benefits. This figure normally will be based on average income for a specified period of time, such as one, two or three years. So, the policy may define pre-disability income as:

the average monthly income earned by the insured during the 12 months prior to the onset of total disability.

Google Plus One