Total vs. Residual Disability Analysis
You must understand the intricacies of your long-term disability income policy to know if you are totally or residually disabled in your occupation. Do not allow a disability insurance company to confuse or mislead you.
Many long-terms disability income policies provide for both total and residual (partial) disability benefits. In such disability policies total disability is usually defined as the inability to perform the substantial and material duties of your occupation, or some variation thereof. Residual disability is often defined as the inability to perform one or more duties of your regular occupation, or the inability to perform these duties for as much time as before, and you have suffered a loss of at least 20% of your pre-disability income.
These provisions seem strikingly similar, but they are not. Often, a claimant may fit both the total and residual disability definitions. In such situations, an insurance carrier will attempt to claim that the claimant is residually disabled and not totally disabled. Many claimants automatically assume that if they are working at all they are not totally disabled, but they must be partially or residually disabled. However, this is often not the case and not the protection that a claimant has been paying premium dollars for. Many insurance carriers utilize such ambiguous language in writing disability income policies because claimants, unfamiliar with contract interpretation, will often rely on the carrier’s reading of the policy. However, it is important to note that in most states, ambiguous contract language is decided in favor of the insured. Many individuals are not aware of this fact and thus, look to the writer of the contract for clarification, their insurance carrier.
The reasons insurance carriers would rather pay residual disability benefits rather than total disability benefits are simple. Most disability policies provide that an individual with a partial disability will only be paid through the age of 65, while an individual on total disability benefits may be paid for the duration of the individual’s life. Moreover, partial disability benefits are based on the percentage of pre-disability income lost. Thus, an individual receiving residual, rather than total disability benefits may receive a reduced benefit or no benefit at all if his monthly income exceeds a certain percentage of pre-disability earnings. Finally, in the event of a buyout of the disability policy, an individual would be more apt to surrender his or her contract for a smaller settlement, if the individual’s disability were deemed partial rather than total. This practice saves insurance carriers hundreds of millions of dollars each year.
Click here to review a summary of a case Attorney’s Dell & Schaefer resolved for a dentist that dealt with the issue of a disability insurance company claiming he was entitled to residual disability but not total disability.