Many people don’t realize that you actually don’t have to be flat on your back to get financial help from a disability insurance policy. Many policies provide for partial disability which can provide substantial disability benefits even after your medical crisis or injury have improved.
This fact was pointed out in a recent Wall Street Journal article by financial planner Michael Relvas, Rockville, Md., who noted that it is sometimes very hard to know about this benefit because many times you need a code breaker to decipher disability insurance contract language. However, it is definitely worth the time and effort to find out if you have this benefit.
From an actuarial perspective it has been shown repeatedly that the risk of suffering a partial disability is substantially greater than the risk of suffering total disability. Yet, many disability policies do not provide benefits for only partial disability.
Residual benefits are the key words in determining if you have such coverage in your disability policy. If you are fortunate enough to have it, then you may receive benefits even if you are able to return to work, provided, in most cases, that your income is at least 20% less than you were making before your disability struck.
You may be entitled to residual benefits which will bring your post-disability income up to 80% of your pre-disability income.
Mr. Relvan also points out that residual clauses in older policies may be more valuable. Many older policies will pay benefits till age 65. Newer policies typically pay residual benefits for only 2 years.
Not all disability income policies have residual benefit coverage. Particularly if you are the owner of a small business or in a profession, such as medicine or accounting, this type of coverage can be vital in the event of a disability.
As we have said before, it is vital to read your insurance policy before a triggering event rather that after one. Before, you can do something about a gap in your coverage. After, you are out of luck.
When it comes to protecting income, you have to be thoughtful. Medical disabilities often come with longer, drawn out recoveries which may permit a return to an occupation, but at a less remunerative level.
You have to decide:
Do I need insurance coverage for this eventuality?