Most people understand how important it is that their disability policy includes a true “own occupation” definition of total disability. This is what can protect the income that is earned specifically within a job that they have trained to do for years.
But, what about a situations in which you become only partially disabled?
Would your disability policy replace your lost income if you had to reduce your work hours or were unable to perform some of the duties of your occupation?
Many disabilities are classified as “partial” when a person can do some of the work he or she was doing prior to the injury or illness, but not all, or not full time. In some cases, they may initially be totally disabled, but then, after a period of recovery, they may be considered partially disabled as they regain the ability to perform some of their job duties. In typical disability insurance policies, a person who is partially disabled would receive a proportion of their monthly benefit relative to the percentage of lost income while they remain partially disabled.
In real terms, if someone that is earning $120,000 per year lost half of his income, he or she would receive half of his maximum monthly benefit. If his maximum monthly benefit amount was $6,000, he would receive a benefit of $3,000 per month or $36,000 annually. When added to his remaining income of $60,000, they would have $96,000 of total annual income (80% of his pre-disability income ($96,000 / $120,000). While this could definitely be a hit to their lifestyle, they will hopefully be able to make adjustments.
The strongest policies on the market will pay a partially disabled person the actual amount of income lost for the first 12 months of the partial (sometimes referred to as residual) disability. These policies can pay a benefit sufficient enough to replace all of your lost income.
At the end of the 12 month period of receiving the actual loss of income benefit (up to the maximum monthly benefit for total disability), these policies will then begin to pay a benefit that is proportionate to the percentage of lost income, like the example shown earlier: Consider our prior partial disability example. Our partially disabled individual qualified for a $3,000 partial disability benefit for their 50% loss of earnings. With a loss of income benefit, this person would have instead been eligible for a monthly benefit of $5,000 during the first 12 months of partial disability – substantially more. They greater your income, the larger the difference is between a proportionate benefit and one that replaces lost income.
There are a lot of moving parts in a disability policy; each part needs to be thoroughly understood if the policy is going to provide the level of protection you need and expect. It’s important to have your policy reviewed by a highly qualified disability insurance specialist.
Take a close look at the wording in your existing policy or in the quotes that you receive if you are considering purchasing disability insurance. A partial, or residual, benefit is very important, and so is your income.
The best way to know that you will have the strongest plan in place if you become sick or injured is to work with a specialist that understands the fine nuances of disability insurance policies.
Contact Insuring Income to receive a review of your existing policy, or to get quotes for coverage.