Being out of work due to disability can leave you feeling unfulfilled and bored. Residual disability benefits can help you go back to work at a job you can handle without risking your financial stability.
Here’s what you need to know about residual disability insurance: what it is, how it works and how to get it. When you’re ready to shop, expert independent insurance agents are here to answer your questions and find you the disability coverage you need at the right price.
What Are Residual Disability Benefits?
Becoming disabled doesn’t always mean losing the ability to work. Often, becoming disabled means you will have to work fewer hours or switch careers, possibly to a lower-paying career. Residual disability benefits can make up that gap in income.
Residual disability benefits allow you to continue receiving a percentage of your full disability benefit if you return to work part-time. Many policies even allow you to switch back to receiving the full benefits if you become unable to work again someday.
It pays to look for a disability insurance policy that offers residual benefits. An independent insurance agent can go over the fine print with you to help you understand every detail of your policy before you sign it.
Why Are Residual Disability Benefits Important?
Even if they don’t love their job, most people would find it frustrating to not be able to work at all. Unfortunately, the strict work requirements that accompany government disability benefits mean you could be left permanently prohibited from working if you become disabled — even if you’re physically able to handle a job.
Buying a disability insurance policy that allows for residual benefits is a great way to avoid that frustrating scenario. That way you can work and still be guaranteed a steady income, even if your ability to work is unpredictable.
Residual Benefits of Long-Term vs. Short-Term Disability Insurance
Short-term disability insurance rarely offers an option to receive residual benefits. That’s OK, because short-term disability benefits are there to help you rest up and get back on your feet during a temporary disability.
Long-term disability insurance is, as the name implies, long term — often lasting until retirement or even the rest of your life. Your ability to work could change a lot in that time. That’s why residual benefits are typically associated only with long-term disability insurance.
Residual Benefits of Group vs. Individual Disability Insurance
Disability insurance is sold two ways: to groups (typically through workplaces or professional and social groups) or directly to individuals. Each has their pros and cons.
|Type||Benefits Offered||Benefits Period||Pros and Cons|
|Individual||Flat income amount||Short Term: |
Long Term: From 2 years until retirement
|Pros: Full control over the coverage; no loss of coverage when you change jobs; can shop from any company for the best offerings |
Cons: Can be expensive if your risks are higher
|Group||Percentage of income||Short Term: Less than 1 year |
Long Term: From 2 years until retirement
|Pros: If you're at high risk for disability, pooling coverage with others can be cheaper |
Cons: Limited options; you lose coverage when you switch jobs
Source: Principles of Life and Health Insurance
You can receive residual benefits from either a group or an individual disability insurance policy. They’re most commonly offered on long-term disability insurance policies.
Partial Disability vs. Residual Disability
“Partial disability” and “residual disability” mean the same thing — getting some (but not all) of your disability benefit because you are working part-time. In contrast, total disability means you are getting the full benefit because you are totally unable to work.
- Partial or residual disability: Pays out some, but not all, of your disability benefit to make up for lost income if you’re able to work after becoming disabled
- Total disability: Pays out your full disability benefit because you are totally unable to work.
If you’re seeing any of these terms in your insurance policy and aren’t sure what they might mean for you, an independent insurance agent can help. They’re industry experts who specialize in red tape and fine print.
Social Security and Residual Benefits: What You Need to Know
The Social Security Administration (SSA) does not offer residual (partial) benefits. You either get benefits or you don’t. But there’s a confusing detail: the SSA has something called your “residual functional capacity” (RFC). So, what is the RFC and what is it used for?
The Residual Functional Capacity Form
Your residual functional capacity is a fancy way of saying “how much and what kind of work you’re still able to do.” It’s assessed by doctors, psychologists, and other medical and vocational professionals. There are two types of RFC evaluations: physical and mental:
Physical Impairments and Abilities Analysis
The physical impairments and abilities part of the RFC evaluates your physical ability to work. It's based on these factors:
- Exertion: How much you’re able to carry and move around
- Posture: How well you’re able to move, especially in tricky postures like kneeling, bending and climbing
- Manipulation: How much you’re able to use your hands for things like reaching, grasping, and typing
- Vision: How well you can see, including depth perception and color-blindness
- Communication: Whether or not you can speak or hear well enough to work safely at a jobsite
- Environment: Whether or not your disability is worsened by environmental factors such as extreme temperature or ways your disability could worsen the environment for your coworkers (e.g., if you’re an unsafe driver because of your epilepsy)
- Symptoms: How much symptoms like pain and nausea affect your ability to work
Mental Impairments and Abilities Analysis
The mental impairments and abilities part of the RFC evaluates your mental capacity to work. It's rare to get government benefits based on scoring low on this evaluation alone. It's usually taken into consideration alongside the physical analysis.
The mental analysis is based on these factors:
- Understanding and memory: How well you remember locations, instructions, and other essential work functions
- Sustained concentration and persistence: Whether or not you’re able to complete tasks, stick to a schedule, or make decisions effectively
- Social interaction: How well you get along with supervisors, coworkers, and the general public, such as whether you’re able to take criticism, maintain basic hygiene, etc.
- Adaptation: Whether or not you can handle changes in your work environment including responding to alarms or hazards
Both types also include statements from your treating physician, meaning their professional opinion of your disability and how it affects your work.
Despite the “residual” in the name, however, this assessment is not used to determine whether or not you’ll get residual benefits. The RFC is used in the SSI and SSDI approval processes only.
Residual Benefits vs. Government Benefits
Residual benefits are a huge perk of buying private disability insurance rather than relying on government benefits. Being able to work can give your life meaning and purpose after becoming disabled.
Residual benefits allow you to work without fearing that you'll get permanently kicked off of your benefits if you ever need the full amount again.
How to Calculate Residual Disability Benefits
Residual benefits are calculated based on income loss and the size of your disability benefit. For example, let’s say you made $4000 per month before becoming disabled and had disability insurance on 75% of that income:
- The full insurance benefit — 75% of your income — would be $3000 a month. You’d get this amount if you were totally disabled.
- If you were partially disabled and chose to return to work part-time, you would get a percentage of the full disability benefit as a residual disability benefit.
- If you worked part-time and made $1000 a month after becoming disabled, that would be a 75% reduction in income. The residual disability benefit would then be 75% of your total disability benefit (which comes to $2250 per month).
Each insurance company does their residual benefits a little differently. Some companies have percentage caps and other limits on how you can receive your residual benefits. But residuals are always based on the percentage of income you lost after becoming disabled.
How an Independent Insurance Agent Can Level Up Your Disability Insurance
Shopping for disability insurance yourself can be a downer. It’s hard to know where to look or how to find a good deal. Luckily, independent insurance agents are here to handle the hard parts for you.
Independent insurance agents are industry experts who aren’t bound to any one company. They can compare quotes from multiple insurers to find you the coverage you want at the right price. Shopping for disability insurance with an independent insurance agent is shopping smart.
TrustedChoice.com Article | Reviewed by Paul Martin
©2020, Consumer Agent Portal, LLC. All rights reserved.
The Long Term Care Handbook (3rd edition) by Jeff Sadler
Nolo’s Guide to Social Security Disability: Getting and Keeping Your Benefits (8th edition) by David A. Morton III, M.D.
Principles of Life and Health Insurance (2nd edition) by Dani L. Long and Gene A. Morton