Disability insurance pays benefits when you're so disabled you can't work. If you're disabled but can still work, you may be eligible for residual disability benefits.
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If you have disability insurance, when you become disabled and can’t work you’ll start receiving disability insurance benefits. The amount you receive is called a coverage amount, but your eligibility to receive disability benefits and the way in which you receive them is defined in the policy under its definition of disability.
If you’re not so disabled that you can’t work at all, you can still claim benefits under the partial disability definition. These benefits are called residual disability benefits.
The residual disability benefit for partial disability may pay the full amount of benefits you’d receive if you were totally disabled for a limited time, after which you’ll receive a percentage based on your monthly earnings. The calculation factors in the loss of responsibilities, income, and time and pays out to replace those losses.
You may be able to receive a residual disability benefit as part of your base disability insurance policy, or it might have to be purchased separately as a rider.
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Your eligibility to receive disability insurance benefits after you become disabled hinges on your insurance policy’s definition of disability. Most policies have provisions that cover all these types of definitions, although sometimes you may have to purchase extra coverage via a rider.
The policy will be either own-occupation disability insurance or any-occupation disability insurance. Own-occupation means that you have to be only so disabled that you can’t work at your current or most recent (if unemployed at the time you claim benefits) job. That makes it easier to qualify for than any-occupation disability insurance, which requires you to be so disabled that you can’t work at any job for which you’re qualified.
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After that, the policy will spell out each definition of disability. These categories are not mutually exclusive, but build on each other to make sure you’re getting the coverage you need. Most of them include an elimination period, a length of time you’ll have to wait out before the disability insurance company starts paying benefits.
Total disability. This definition of disability pays out benefits when you’re so disabled that you can’t work and you lose your income. You can claim benefits until you recover from your disability or the benefits period ends.
Partial disability. This is the definition of disability under which you can receive residual disability benefits. Partial disability means you aren’t so disabled that you can’t work at all, or lose only a portion of your income due to the disability. Although the benefit amounts may be the same as those of total disability, partial disability benefits only last for a set period of months after the elimination period ends.
Extended partial disability. After the partial disability benefits run out, you may be eligible to continue receiving residual disability benefits under the extended partial disability provision. This is the same as partial disability, except it lasts for as long as you need it. However, benefit amounts will be reduced proportionally with the amount of income you lost.
Presumptive total disability. This is a form of total disability that presumes you’ll never recover from your disability. It includes injuries like the loss of limbs and total blindness and deafness. There is no elimination period.
Other definitions of disability exist, either as part of the base policy or which can be purchased as riders. An enhanced option that kicks in sooner is ideal for workers who might experience more measurable losses, like lawyers, business owners, and medical field employees.
The residual disability benefit is paid to you when you claim disability insurance benefits under the partial disability definition. In some cases, your policy will distinguish between partial disability benefits and residual disability benefits, the former referring to loss of responsibilities or time and the latter referring to the loss of income. But other policies put all three types of loss under one provision.
You can claim residual disability benefits if you’re not totally disabled and can continue working at your job, but lose some portion of your income or duties. After waiting out the elimination period, there will be an initial period during which you’ll receive partial disability benefits, often around six months. The benefit amount will be the same as that you receive from total disability benefits.
After the initial period ends, if you’re still disabled your policy may allow you to extend your coverage partial disability coverage. This way you can keep receiving residual disability insurance benefits indefinitely, but the amount you receive will be dependent on your monthly earnings.
You have to reach a certain threshold – defined in your policy – of loss of earnings to keep receiving partial disability coverage. Benefit amounts may also be reduced by the percentage of the total disability amount that you earn from your income.
As with the other definitions of disability, you sometimes have to be under the care of a physician to treat the injury or illness that caused your disability.
There are three ways carriers measure a partial disability: loss of duties, loss of time or loss of income.
Loss of duties — When you can work but can’t accomplish duties that make up 20% or more of your work.
Loss of time — When you can do all of your duties but can’t do them for more than 75% to 80% of the time you previously spent doing them.
Loss of income — When you experience at least a 15% to 20% loss of income because of injury or illness.
If your loss is 75% to 80% of your income or higher, most carriers consider you totally disabled and pay the full benefit amount.
If you’re receiving residual disability benefits under the partial disability provision, you may eventually qualify for total disability benefits. This can happen if your injury or illness progresses to such an extent that you can no longer continue working at your job (or, when the policy is any-occupation, if you can’t work at any appropriate job).
Since you already waited out the elimination period, you won’t be subject to another one. And because you’re now covered under the total disability definition, you’ll receive full benefits until you either recover from your disability or the benefits period ends. With a long-term disability insurance policy, that could mean five years after benefits or begin or even until you retire, depending on the policy you purchased.
Recovery benefits are also provided with most residual benefit provisions. After you recover from a partial disability and return to working at full capacity, you may still not be at full income. For example, if you’re a small business owner who lost some clients while you were disabled, you might need more time to build back up to your pre-disability income. Recovery benefits can cover the gap while you do so.