This article will provide a comprehensive overview of residual disability income insurance, including its definition, payment structure, and advantages.
It will also compare and contrast the residual benefits of long-term and short-term disability insurance.
Moreover, it will discuss the residual benefits of group and individual disability insurance and provide guidance on calculating residual disability benefits.
What are residual disability income insurance payments based on?
The residual benefits that one receives are determined by the extent of their income loss and the amount of their disability benefit.
What are residual disability benefits?
The residual disability benefit is a temporary payout provided to individuals who are partially disabled and unable to perform all of their job responsibilities.
This benefit is intended to assist the insured in returning to work, even if they cannot complete one or more tasks required by their job.
In cases of partial disability, where the insured is still able to perform some duties, but not all, or can only work part-time, total disability benefits would not be applicable.
Why residual disability benefits are important
Although many individuals may not necessarily enjoy their jobs, the inability to work altogether would likely be a frustrating experience.
However, strict work-related requirements that come with government disability benefits can leave disabled individuals permanently unable to work, even if they are physically capable of handling a job.
To prevent this frustrating situation, it is advisable to purchase a disability insurance policy that offers residual benefits.
This would provide a guaranteed steady income, even if one’s ability to work becomes unpredictable, allowing them to work while still being financially secure.
Qualifications for residual disability benefits
- Loss of duties
- Loss of income
- Loss of time
Residual benefits of long-term vs. short-term disability insurance
Long-term disability insurance
As its name suggests, this insurance can provide coverage for an extended period, sometimes up until retirement or even for the remainder of one’s life.
Since a lot can change in terms of your ability to work during such a lengthy period, residual benefits are usually linked only to long-term disability insurance.
Short-term disability insurance
Short-term disability benefits are designed to provide assistance during a temporary disability, helping individuals to recover and return to their normal routine.
Residual benefits of group vs. individual disability insurance
Individual Flat income amount Short-term: 1-5 years Long-term: 2 years until retirement
Pros:
- Provides full control over coverage
- Coverage remains intact despite job changes
- Opportunity to select from various companies for the best offerings
Cons:
- May be expensive if risks are higher
Group Percentage of income Short-term: Less than 1 year Long-term: 2 years until retirement
Pros:
- Cost-effective option for those at high risk of disability
- Pooling coverage with others can be cheaper
Cons:
- Limited options available
- Coverage is lost when switching jobs.
Partial disability vs. residual disability
Partial disability” and “residual disability” are synonymous terms that refer to receiving a portion (rather than the entirety) of disability benefits due to working part-time.
On the other hand, “total disability” indicates receiving the full benefit due to complete incapacity to work.”
How to calculate residual disability benefits
The amount of your residual benefits is determined by both your disability benefit and the magnitude of your income loss.
If you become totally disabled, you would receive the full insurance benefit of $3000 per month, which is equivalent to 75% of your income. However, if you opt to return to work part-time while partially disabled, you would be eligible for a residual disability benefit, which is a portion of the full disability benefit.
For instance, if your part-time work yields a monthly income of $1000 after becoming disabled, your income would have reduced by 75%. Hence, your residual disability benefit would be 75% of your total disability benefit, amounting to $2250 per month.
Other sources of disability income
- Savings
- Worker’s compensation
- Social Security
- Frugal
Nick Greenlight is an experienced individual in the financial sector, with knowledge spanning from investment management to income tax preparation.
He has been writing informative essays on personal finance for over a decade and holds several credentials.