As we mentioned in the other articles, the main purpose of disability insurance is to replace a person’s income in the event that they are unable to work, help balance earnings and personal expenses, sudden disruptions, and the threat of financial disaster. can quickly become a reality. as a result of an accident or illness. In this article, we will discuss the residual disability in the disability insurance policy.
Residual disability benefits are based on the insured’s loss of earnings. 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 income is less than 20%, no benefit is paid. If it is greater than 80%, the insured is considered totally disabled and the policy will pay all the benefits.
In order for the insured to be eligible for residual benefits, they must submit a supplemental financial document to prove their loss of income.
A) Residual Disability – Previous Earnings
To determine the appropriate income amount, some insurers use one of the following methods:
1. Average monthly earnings for 6 consecutive months in the 2 years prior to disability
2. Average monthly earnings for the 12-month period immediately preceding the disability
3. Highest average monthly earnings for 2 consecutive years in the 5 years prior to disability
Once pre-disability income is determined, it is compared to the insured’s earnings after returning to work.
B) Residual Disability – Inflationary Indexation
To protect the Residual Benefit of the insured, some insurers will make adjustments using the Consumer Price Index. Some companies will simply index the profit based on a fixed percentage.
C) Recurring Disability
When the insured is no longer considered Total, Residual or Partially disabled, their benefits are extinguished. However, if the disability recurs (either Total or Residual) from the same or related cause, the recurrence is considered a continuation of the original disability and a new elimination period does not apply and benefits begin immediately. . If the recidivism occurs more than 6 months, the recidivism will consider a new disability. A new benefit and elimination period would apply.
D) Recovery Benefits
If a policy contains recovery benefits, following a claim, additional monthly benefits may be paid to provide financial assistance to the insured once they return to full-time work and the benefit amount is based on the pro rata monthly benefit.
There may be some other riders, such as automatic indexing (this feature is designed to protect the monthly benefit against the effects of inflation), presumed total disability (under certain conditions, the insurer will consider the insured to be totally disabled), rehabilitation benefit (Sometimes insurers will pay a rehabilitation benefit to help a disabled insured return to work) and premium waiver (when the insured has been disabled for 90 days, future premiums will be waived, but only as long as the insured remain disabled).
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