Total vs. Residual Benefits: What You Need to Know

Disability insurance policies pay benefits if you can't work at all (total disability) or can work only some of the time (residual or partial disability). If you become disabled for an extended period of time, disability insurance can offer financial protection. It's important to consider the different types of policies and their costs to select the right coverage for you.

This article discusses total disability insurance coverage. It also looks at partial or residual disability insurance coverage. Finally, the article discusses factors to consider when buying a disability insurance policy.

Total Disability Insurance Coverage

Total disability means you can't work at all, whether temporarily or for an extended period. But, insurance policies can define total disability in different ways. Policies can offer presumptive total disability coverage, "own occupation" coverage, or "any occupation" coverage. We discuss each below.

Presumptive Total Disability Coverage

Most insurance companies presume certain conditions are totally disabling. These conditions typically include:

• Loss of sight in both eyes
• Loss of hearing in both ears
• Loss of speech
• Loss of the use of both hands
• Loss of the use of both feet
• The use of only one hand and one foot

Suppose you're affected by one of these conditions. In that case, you generally don't have to meet the usual requirements to be totally disabled and get total disability benefit payments. Also, you can get your benefit amount immediately and maintain your eligibility even if you can return to work.

Own Occupation Disability Coverage

An "own occupation" insurance policy generally defines total disability as the inability to perform your job's substantial and material duties. You don't need to be totally helpless. You can even work in another occupation and get disability benefits.

Because an "own occupation" policy is broader in its coverage, it can come with a higher premium than other policies. This type of policy may not be available to you if you work in a riskier job or have a complex medical history.

Any Occupation Disability Coverage

Some disability insurance policies define "total disability" as the inability to perform the duties of any occupation. This definition is narrower than the one in an "own occupation" policy. Under this definition, you must be unable to work in any occupation instead of just your own occupation."Any occupation" policies typically define "disability" by your ability to engage in any gainful occupation for which you're reasonably suited. Determining whether you're reasonably suited for an occupation involves consideration of your education, work experience, and other factors.

Many disability insurance policies use an "own occupation" definition of disability and an "any occupation" definition. You can buy a policy that provides "own occupation" coverage for a limited period, such as two years. When this period ends, you must meet the narrower "any occupation" definition of disability to continue getting benefits. Long-term disability policies are often designed this way.

Residual and Partial Disability Insurance Coverage

Residual disability usually means the inability to perform one or more duties of your occupation. It's also defined as the inability to perform these duties as often as you could before your disability arose, coupled with the loss of a significant percentage of your pre-disability income.

Partial disability is like residual disability. But, how disability insurance companies calculate these two types of benefits differs. We discuss each below.

Residual Disability Coverage

Residual disability policies pay benefits according to the income you've lost because of your disability. These policies pay benefits even if you can work part time and aren't totally disabled.

Your benefits are based on the percentage of income you earn working part time in relation to what you used to earn when working full time. Most companies need a loss of income of at least 20% compared with your pre-disability income to qualify for residual disability benefits.

Depending on your residual disability policy, you may get a reduced or no benefit if your monthly income exceeds a certain percentage of your pre-disability income. Under some policies, you must first qualify for a period of total disability to qualify for residual disability benefits.

You can buy a stand-alone residual policy. This is an income replacement policy. Or, you can opt for a total disability policy with residual coverage as a rider. A rider is a supplementary part of your insurance that adds benefits to your original, standard policy. An income replacement policy is generally less expensive than a total disability policy.

Partial Disability Coverage

Partial disability coverage is like residual disability coverage. Both types of coverage pay benefits if you can perform some of the duties of your occupation.

But, loss of earnings isn't considered when determining partial benefits. Instead, you'll get pay in an amount equal to 50% (or possibly less) of the benefit you would earn if you were totally disabled. The benefit period is also much shorter than for total disability coverage. The benefit period is usually only six to 12 months.

Factors to Consider When Choosing a Disability Insurance Plan

When deciding on a disability insurance plan, there are a few basic things to consider. Generally, the maximum amount of disability income that you can buy is 70% of your occupational earnings. Also, the period between the beginning of your disability and payment of monthly benefits (known as the waiting period) generally runs from 30 days to one year.

Beyond the above considerations, keep in mind:

• A total disability policy with residual disability coverage offers the most protection but at a higher cost
• Stand-alone residual disability coverage provides income protection at a lower cost
• Partial disability coverage provides benefits for a short time and at the lowest cost
• Generally, the cheaper the policy is, the longer the waiting period will be

Need Help With Your Disability Insurance Benefits? Contact a Lawyer Today

Wondering whether your disability insurance policy covers your injury or medical condition? Or maybe you want to ensure your coverage protects you in the event of a future disabling accident or impairment. In either case, contacting an experienced disability attorney can offer you peace of mind. A disability lawyer can also help you, as a claimant, with your disability claim.