Disability Insurance 09 – Understand Residual Disability

As we mentioned in the other articles, the main purpose of disability insurance is to to replace an individual’s income should they be unable to work, helps to balance between personal earnings and expenses suddenly is upset, and the threat of financial disaster can quickly become a reality as a result of either an accident or a sickness. In this article, we will discuss residual disability in disability insurance policy.

Residual Disability benefits are based on the insured’s loss of earnings.The insurance companies use two methods to determine an insured’s eligibility for residual benefits:
1. The Loss of Earnings method,
2. The Loss of Earnings and Loss of Time or Duties method.

Generally, if the loss of earnings is less than 20% no benefit is payable. If it is greater than 80% the insured is considered totally disabled and the policy will pay the full amount of the benefits.
In order for the insured to be eligible for residual benefits, they must supple financial document to prove their loss of earning.

A) Residual Disability – Prior Earned Income
In order to determine the appropriate income amount, some insurers use one of the following methods:
1. Average monthly earnings for any 6 consecutive months in the 2 years preceding disability
2. Average monthly earnings for the 12 month period immediately preceding disability
3. Highest average monthly earnings for any 2 consecutive years in the 5 years prior to disability
Once the pre-disability income is determined, it is compared to the insured’s earnings after returning to work.

B) Residual Disability – Inflation Indexing
In order to protect the insured’s Residual Benefit, some insurers will make adjustments using the Consumer Price Index. Some companies will simply index the benefit based on a flat percentage.

C) Recurrent Disability
When the insured is no longer considered Totally, Residually or Partially disabled, their benefits are terminated. However, if the disability recurs (either Total or Residual) from either the same or a related cause,the recurrence is consider a continuation of the original disability and no new elimination period is applied and the benefits begin immediately. If the recurrence happens more than 6 months, the recurrence will consider a new disability. A new elimination and benefit period would apply.

D) Recovery Benefits
If a policy contain recovery benefits then following a claim, additional monthly benefits could be paid to provide financial assistance to the insured once they return to full-time work and the amount of the benefit is based on the proportionate monthly benefit.

There may be some other clauses, such as automatic indexing(this feature is designed to protect the monthly benefit against the effects of inflation), presumptive total disability(under certain conditions, the insurer will consider the insured to be totally) disabled, rehabilitation benefit (Insurers will sometimes pay a rehabilitation benefit to assist a disabled insured to return to work) and waiver of premium(when the insured has been disable for 90 days, future premiums will be waived, but only while the insured remains disabled).

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