Disability insurance is often viewed as an all-or-nothing proposition.
Either you are totally disabled to the point you can’t work at all, or you don’t collect any benefits from your policy.
So what happens if you’re only partially disabled and can’t work to the full extent you did before an injury or illness? As a result, you won’t earn as much money, but can you collect on your disability policy?
The answer will depend on whether your policy has a residual disability benefit, either as part of the policy or as an optional rider.
Most disabilities start as residual or partial disabilities
When people think about disabilities that impact their ability to work, many only consider the effect of catastrophic injuries such as from a car accident or other freak, unexpected accident.
But the reality is that 95 percent of all long-term disability insurance claims are caused by illness and not accidents or injuries, according to the Council for Disability Awareness.
As a physician, you know that many illnesses occur gradually. You may remain healthy enough to perform all of your job functions for awhile before the illness or the treatment of it starts to affect your ability to perform medicine.
For example, you may suffer a cardiac episode that doesn’t affect your overall ability to work in your specialty, but may reduce the number of procedures you can perform. A cancer diagnosis may not permanently sideline you, but radiation treatment may keep you home for a few days at a time. MS sufferers often have to long periods of time in which they cannot work.
In these examples, a physician wouldn’t be considered totally disabled, but they are potentially losing significant income because they are not seeing as many patients or billing for as many procedures.
What is a partial or residual disability benefit rider?
A residual or partial disability rider covers you in the event you become disabled but are still able to work in a limited capacity.
This option differs from an own-occupation feature. They are both designed to protect you in the event you can still earn some income by helping you close the gap between your pre-disability and post-disability income.
But whereas an own-occupation provision covers you in the event you can’t work at all in your current speciality, a residual rider covers you in the event you can partially work in your current area of practice.
Typically in these situations, you may be able to work part time but still lose income because of an injury or illness that restricts you from working full-time.
How does a disability insurance policy determine whether I am partially disabled?
Residually disabled is generally defined as being able to perform one or more, but not all, of the material and substantial duties of your occupation, or you are unable to work in your occupation for a set percentage of time.
Residual disability benefits are triggered when the insured suffers an established percentage of income loss because of their disability. Depending on the insurer and the policy, the minimum loss of income can range from 15 percent to 20 percent – see each disability insurance company’s required income loss here.
The benefit you receive under the provision is typically proportionate to your lost earning power. If you suffer a 30 percent loss of pre-disability income, you’ll receive 30 percent of your total disability benefit up to the maximum benefit period in your policy.
If you don’t have a residual disability benefit rider with your policy, you will only receive benefits if you are considered totally disabled. Some companies will cap residual benefits at 50 percent of your base monthly benefit.
Basic vs. enhanced residual disability riders
Many carriers offer a choice of residual riders, which are typically a basic version and an enhanced version. The difference between the options can include:
- How the amount of residual disability benefits are calculated. An enhanced rider will often pay a higher benefit amount.
- How residual disability is defined. For example, one carrier’s enhanced residual disability rider will be triggered as long as the insured loses at least 20 percent of their pre-disability earnings or 20 percent of their ability to perform their duties or 20 percent of the time they can work. Its basic rider, on the other hand, only pays residual benefits if the insured loses at least 20 percent of income, plus either 20 percent of time worked or duties.
- How long a minimum benefit is guaranteed during a residual disability period. An enhanced rider may guarantee a policy owner will receive at least 50 percent of his or her monthly benefit for the first 12 months of disability; the basic rider may stipulate this guarantee is for six months.
- Whether you have to return to your own occupation or you can work in a different area to receive residual benefits. In one example, a carrier’s enhanced residual disability rider enables the insured to work in either their previous occupation or another occupation during recovery. Its basic version only permits the policy owner to work in his or her previous occupation to be eligible for recovery benefits.
Do all disability insurance policies include residual disability benefits?
Some policies automatically include residual benefits. Most offer the benefit as an optional rider that will increase your premium payment. Ameritas, for example, requires the purchase of an residual disability rider when covering any medical occupation class.
The main reason to consider a residual benefit rider is that disabilities are rarely black and white and people are affected in varying degrees. It’s important to have comprehensive coverage that will provide benefits for a number of scenarios in the event you lose some or all of your income due to injury or illness.
What percentage of doctors have a residual disability benefit in their policy?
According to the 2017 Report on Individual Disability Insurance for Physicians and Dentists, an estimated 90.1% of all disability insurance policies sold to doctors contain a residual disability benefit rider. 77% of these are enhanced residual disability riders while 23% are basic residual disability riders.
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