Residual Disability Benefits
A number of disability policies provide payments to those who are ill but can still work or may be recovering from an illness. There can be wide differences in how a disability insurance policy defines “work” and “disability.” Generally, a residual benefit can be received if someone returns to work but cannot do the same level of work or must take a lesser-paying job. To qualify, the income reduction must be at least 20% less than the previous earnings, and the reduction must be due to the medical condition.
For example, suppose an insured medical specialist’s income dropped from $20,000 a month down to $8,000 a month due to a covered condition. A residual disability benefit might provide supplemental payments that would bring the doctor’s overall income up to $16,000 a month (80% of $20,000). A policy’s “recovery benefits” might also include ongoing compensation for someone whose career traction was diminished. A benefit might be possible if someone lost clients because of their extensive recovery period from a medical procedure.
In general, residuary benefits last for up to two years and coverage until age 65. If a policy owner becomes totally disabled and is unable to work, monthly benefits begin after an initial waiting period—usually 1–3 months. Benefits from most disability policies are taxable but may not be, depending upon who pays the premium and whether the premiums are tax deductible.