Key Terms
- Social Security Disability Insurance is only offered to individuals who are totally disabled and cannot work for at least one year.
- A partial disability rider replaces a portion of your income if you cannot work.
- Everyone can benefit from a residual disability rider.
Taking our health for granted is a natural thing, yet our whole world can come crashing down when we can no longer continue doing our regular duties at our normal place of work. In addition to experiencing a debilitating illness or having to recover from a serious injury, workers face emotional turmoil, reduced income, and a disruption in their normal routines for a period of time.
Serious injuries and illnesses do not always take workers out of commission completely. Workers may be able to do some of their duties and not others, or they may be able to work only for a limited number of hours. A partial income may not be sufficient to meet a worker’s financial needs, but a partial disability rider on a disability insurance policy can fill the gap in income.
A partial disability rider is an optional rider adding income protection coverage to a disability insurance policy that provides a payment during the monthly benefit period to the insured if they are only partially disabled during the policy term. The payments apply when a worker becomes injured or ill due to something that happens outside of work, as workers’ compensation covers illnesses and injuries that occur while workers are on the job.
How the partial and residual disability benefit rider works
When a person cannot work because of an illness or injury, they are considered disabled. A person who is incapable of working at all is considered totally disabled. Workers who can perform some, but not all, of their usual job duties are considered partially disabled.
A partial and residual disability rider comes into play when a person can work part-time, but not their usual 40-hour work week. While a partial and residual disability rider is not part of a traditional disability insurance policy, insureds may be able to add it to their disability coverage.
Each disability insurance policy defines partial disability differently, so the definition of disability is important for insureds to understand.
Most policies will specify a partial disability is one where the insured’s monthly earnings fall below a certain percentage. The exact percentage will be stated in the policy (for example, 20% loss of income). The monthly earnings generally do not include investment income, rental income, supplemental income from hobbies or activities, or income from other disability policies, so the residual disability benefit rider is only going to become applicable when your primary income suffers.
The policy may stipulate the worker can perform some, but not all, of the duties they are expected to perform on a normal workday (i.e. loss of duties). The policy may also state the worker can do their basic duties, but they cannot do them as effectively as before the injury or illness, or they cannot perform them for as long. Many disability insurance policies also state the worker must actively be under the care of a physician.
If all these criteria are met, the insured is entitled to a percentage of the pre-disability income they earned before the illness or injury occurred. The payments typically continue for a limited amount of time, which will also be specified in the policy (for example, up to 26 weeks of a maximum benefit).
The idea for the partial disability benefits is to provide recovery benefits as you gradually resume the full duties of your occupation while healing from a disability and suffering a loss of income associated with that disability. This rider is separate from suffering a catastrophic disability which would result in a total disability benefit payment from a complete loss of earnings.
Should I purchase a residual disability rider?
Purchasing disability insurance is complicated and there are many decisions to make on the baseline policy, particularly making sure that you have an own occupation policy with a strong definition of disability. But, with those decisions out of the way, disability insurance applicants get to decide which riders or additional insurance benefits to add to their long-term disability policy.
At the time of making these decisions, it can be hard to imagine a time or a circumstance that could lead to a partial disability, yet it happens. The Council for Disability Awareness reports 5% of Americans who work will experience a short-term disability because of a non-occupational circumstance such as a pregnancy, illness, or injury that lasts for six months or less.
Often, workers first look to Social Security Disability Income to replace their income when they cannot perform their expected work duties. Workers who can perform some part of their jobs will be disappointed. To qualify for Social Security Disability Income, a worker must not be able to perform any job functions for at least one year.
Short-term disability insurance may be available for some workers, either as a benefit or a voluntary benefit. Life insurance policyholders who do not have this option at work will benefit from a partial disability rider.
The primary benefit of adding a partial and residual disability rider is it may be the only source of income a partially disabled worker will have if they cannot work full-time. Moreover, a partial disability rider will also provide income while a worker is recovering from a disability. The downside to purchasing a residual disability rider is it adds to the cost of a life insurance policy.
Difference between partial disability and residual disability
Is there a difference in the terms partial disability rider and residual disability rider? The answer depends on how the rider is worded in the policy. Some disability insurance companies define the terms exactly the same. Nonetheless, other insurance companies define them differently.
A partial disability may be defined as one that is a total disability during the elimination period (the waiting period before the insurance company will pay the benefit) while a residual disability refers to a worker who is only partially disabled during the elimination period. By contrast, another disability insurance company may define a partial disability as one that affects one part of a person’s body such as an arm or leg, while a residual disability refers to a drop in earnings.
These terms can be confusing to policyholders, and insurance agents are happy to explain policy wording in layman’s terms.
Closing thoughts
Disability insurance policyholders typically do not interact with their individual disability insurance policies as often as they interact with home and auto insurance policies. Nonetheless, it is important for insureds to understand how their long-term disability insurance policies work for their benefit and their family’s benefit.
To learn more about disability insurance , we have other articles covering disability insurance riders, including the future increase option rider, the cost-of-living adjustment rider and the catastrophic disability insurance rider.
Joshua Holt is a licensed insurance agent (License #2785989) and founder of Biglaw Investor and Sidebar Insurance LLC, an insurance agency created by lawyers, for lawyers. His insurance expertise lies in the areas of life and disability insurance, particularly covering lawyers, doctors and other high-income professionals. Prior to Biglaw Investor, Josh practiced private equity mergers & acquisition law for one of the largest law firms in the country.
