When comparing disability insurance plans, you might come across the terms partial disability vs. residual disability. What’s the difference? As insurance carriers give them different definitions, it’s important to read the policy terms carefully.
Different Levels of Disability
A disability insurance policy replaces a portion of the policyholder’s lost income if the policyholder is disabled according to the terms of the policy. This leads to an important question: what qualifies as a disability?
Policies have different definitions of disability. Some use an own-occupation definition – these are ideal for highly-specialized workers like surgeons because they provide disability benefits when policyholders are unable to perform the duties of their regular jobs, even if they could work in another position. Other policies use an any-occupation definition of disability. These can be less expensive, as they only provide disability benefits if policyholders are unable to work in any job suitable for them.
These definitions are important, but they’re still only part of the picture. For example, what if a disability prevents a person from working for only a short period of time? Whether a person receives benefits will depend on the elimination period and benefit period. As short-term disability insurance policies have short elimination periods, the policyholder can start collecting benefits soon after a disability. However, the benefit period runs out quickly – maybe after just three or six months. Long-term disability insurance policies and individual disability insurance policies offer longer benefit periods, but the elimination period is longer, too – often around 90 days. If your elimination period is 90 days and you recover from your disability before the 90 days are up, you won’t be able to collect benefits.
Another issue arises when a person is disabled and unable to work full time but can work part time. Whether benefits are available depends on if the policy provides total disability, partial disability, or residual disability benefits.
Total Disability Insurance Benefits
A total disability means someone is unable to work at all due to a disability. The condition may be permanent (meaning the person is not expected to recover and return to work) or temporary (meaning the person is expected to recover and return to work).
Workers who experience a permanent total disability may be able to have their student loans discharged and may qualify for certain benefits. However, if doctors think the condition will improve or if there are curative treatment options, a person probably won’t be considered totally and permanently disabled.
Partial Disability Benefits
A partial disability is one that does not meet the criteria of a total disability.
According to IRMI, the precise definition can vary between policies, but insurance companies often define partial disability as the inability to perform one or more of the important duties of the policyholder’s occupation. If a disability insurance policy provides partial disability coverage, the benefit is usually a set percentage of the total disability benefit and there is often a limited benefit period.
For example, let’s say you have a disability income insurance policy that replaces 70% of your income for a benefit period of up to 10 years if you have a total disability that prevents you from working. Let’s also say you’ll receive half the amount for up to nine months if you have a partial disability. In your case, 70% of your regular income is $4,000 a month – this is your benefit for total disability. If you are able to work part time, you can receive a partial disability benefit of 50% of your total disability benefit (or $2,000) for a maximum benefit period of nine months.
Residual Disability Benefits
Policies often use the term “residual disability benefits” interchangeably with the term “partial disability benefits.” This means residual benefits tend to work like partial benefits. However, since the definitions and requirements can vary between policies and insurance companies, your residual disability benefit might be different in important ways.
For example, a residual disability provision may require you to qualify for total disability benefits before you can collect residual benefits. In other words, you would have to be totally disabled and unable to work. If you then you recover, but not fully and you are still unable to work full time, you can claim residual benefits.
Other differences can involve the way the policies calculate benefits. Partial disability benefits are often a set percentage of the total disability benefits, but residual benefits might relate to how much income you’re losing.
However, these are just generalities. You’ll need to check the terms of your policy to see exactly how your insurance carrier defines these terms and whether any partial or residual disability coverage is available to you.
Does Social Security Cover Partial Disability?
The Social Security Administration uses a strict definition of disability. You can only qualify for Social Security Disability Insurance benefits if you are totally disabled, you cannot work in your regular profession or adjust to new work, and your condition is expected to last for at least a year or result in death. No benefits are available for partial or short-term disabilities.
This is one reason why it’s so important for people to purchase private disability policies. Imagine you’ve worked hard to secure a demanding but well-paying job; then, a disability prevents you from preforming all the duties of your occupation. You can still work, but you can’t fulfill the requirements of your old position. You’re looking at a massive pay cut, but, since you can still work, you don’t qualify for Social Security Disability Insurance benefits.
By purchasing individual disability insurance with the definitions and terms you need, you can protect your paycheck in this type of situation.
Reviewing Your Policy Terms
Since it is private insurance companies that offer individual disability insurance policies, the terms can vary significantly from carrier to carrier. Not all disability policies provide partial or residual disability benefits – and those that do might have different definitions and requirements. Review the terms carefully before selecting a policy.
Disability insurance policyholders should also consider the terms of their policies before trying to return to work. After a disability, many people want to go back to work as a soon as possible, and doing so can be beneficial. At the same time, you don’t want to overexert yourself at the risk of your health and put your benefits in jeopardy. Check your policy to see what will happen to your benefits if you return to work.
- Can you continue to collect benefits if you return to work part time, in a reduced capacity, or in a different position?
- How big will the monthly benefits for partial disability be?
- How long can you continue to receive a monthly benefit for a partial disability?
- Will you stop receiving benefits if you earn more than a certain percentage of your regular income? What is the cap?
It’s easy to gloss over issues like the difference between partial disability vs. residual disability when reviewing policy options, but when a policyholder needs to file a claim, these differences can be critical. Insurance agents can help their clients find a policy with the right terms for their needs. Request a quote.