Disability insurance is often ignored, but a much-needed contingency plan. In case an accident or illness limits a person’s ability to work, s/he should have a buffer to meet the basic financial expenses. However, the amount of coverage received depends on the extent to which a person has been affected. This means that the benefits would differ in the case of total and residual disability. Simply explained, the difference between the two is that the former completely restricts a person from performing tasks essential to his/her job whereas the latter refers to partial disability.

Below is a list of different types of disability benefits that a policyholder must be aware of:

1. Total Disability Benefits

When an individual is entirely unable to work, s/he would automatically be deprived of any source of income. Total disability benefits can then be claimed. The person would be liable to receive the amount until s/he recovers and is medically fit to resume work, or the time frame for his/her policy ends.

2. Partial Disability Benefits

A partial disability is when a person is not completely handicapped. S/he can perform limited functions related to a job, or carry out tasks to a certain extent, but not to perfection. Since the affected individual’s performance is hindered by their disability, their income also reduces accordingly. Consequently, the insurance policy allows them a certain amount to make up for a decrease in their earnings, loss of time, and unfulfilled responsibilities. This is usually a flat percentage of their total disability benefit.

However, in situations where the individual’s income is reduced by 20% or more, the benefit amount is calculated keeping in view the percentage of lost income. Such a benefit is referred to as the residual disability benefit.

As is the case with total disability, a partially disabled person is also liable to receive the benefits only till s/he recovers or till the period his/her policy remains valid.

3. Extended Partial Disability Benefits

Some policies allow the insured individual to apply for extended partial disability benefits, once their residual benefits are exhausted. Under this arrangement, the disabled person can continue receiving the benefits till required. However, the amount delivered to them is reduced significantly and is set per the value of the income they are missing out on.

4. Presumptive Total Disability Benefits

Certain disabilities are irreversible, and the individual must learn to live with them. Examples include amputation, blindness, or a loss of hearing ability. In such cases, it is almost impossible that the affected individual will ever be able to resume work. Therefore, the insurance benefits provided to them must be available on an ongoing basis. These benefits are referred to as presumptive total disability benefits.

Whereas most of these benefits are easily understandable, many find the concept of residual disability confusing. Some also wonder if partial and residual disability benefits are the same or different. Therefore, in the rest of the article, we will try to explain residual disability benefits in detail.

Residual Disability Benefits – A Detailed Explanation

Residual benefits are a sub-type of partial disability benefits. Both of them are insurance payments that a person receives when unable to complete tasks relevant to his/her job because of limited ability.

How to Apply?

Residual disability benefits can be claimed by anyone suffering from a partial disability. The applicant may need to wait for some time after making the request. Once the waiting period is over, s/he will receive the amount equivalent to a complete disability for 6 months.

During these 6 months, all benefits received will be similar to those that are made available to a fully disabled person. Once this period ends, the individual may request partial disability benefits if s/he has not yet recovered. However, the benefit amount will thereon be reduced to a certain percentage of their indemnity. As discussed before, this percentage will be determined by the loss incurred if the income has been reduced by 20% or more. The amount received by the beneficiary would then be referred to as residual benefit.

To understand this, let’s consider an example. If your earnings have decreased by 30%, the amount you will be entitled to receive as an insurance benefit would be equal to 30% of the total disability benefit that a policy allows.

The insured individual may continue receiving these benefits (if needed), till the validity of the policy, i.e., usually, till the beneficiary reaches 65 years of age.

Eligibility Criteria

Besides the disability itself, a person must meet the following criteria to qualify for receiving the residual disability benefits.

1. There must be a decrease of 20% or more in the income along with,
2. the inability to work full-time OR an inability to fulfill the duties and responsibilities associated with the job.

How is Residual Disability Benefit calculated?

For calculating the residual disability benefit, we would need to know a person’s income before disability, and the percentage of decrease in it following the unfavorable life event.

Let’s say your income before disability was somewhere around $6000 per month and according to your policy, you are liable to receive 60% of your salary as the total disability benefit.

Important Considerations

When investing in a disability insurance plan, it is important to confirm if a residual disability is covered by the policy. Some insurance companies offer this benefit as a core part of the plan whereas others require the policyholder to purchase it as an add-on by paying a premium. Whatever be the case, one must ensure that s/he has access to residual disability benefits. Since most disabilities are an effect of illness, they occur slowly and gradually. Hence, there would be no point in having a policy that does not cover your expenses till you are completely handicapped.

These benefits are so important that they can be purchased as a stand-alone under the income replacement policy. Doing so would also mean getting residual disability benefits at a lower price. However, if the complete disability plan is purchased, the cost incurred might be higher but would cover incidents of total disability as well.

It depends on the policyholder which type of plan s/he wants to invest in, depending on his/her budget and preference. However, we do recommend having some sort of backup for permanent and temporary disabilities because life may take an unexpected turn at any moment and you are your only savior.