Disability Insurance: Traditional vs. Residual Coverage
Now that you have read prior posts about what disability income is and the various key terms in a disability policy and what they mean, now we can take you into a little more specific detail about the types of disability income insurance policies that are available.
We’ll first look at the definitions of the two types of disability insurance.
One is called traditional coverage – which refers mainly to benefits being paid relative to your inability to perform the duties of your occupation. There is the “own occ,” or “own occupation” coverage, which pays when you are unable to perform duties of your specific occupation; and “any occ,” or “any occupation,” which pays benefits when you are considered totally disabled and unable to perform any occupation. Traditional coverage is what has been referred to in most blog posts to this point – this is the policy that has
benefit and elimination periods.
A residual coverage policy is a little different. This type of policy pays benefits due to a loss of income because of a disability. Rather than asking the question of whether a person can perform his or her job, this type of coverage just simply asks if a person has lost at least 20 percent of his or her pre-disability income due to an illness or injury. In terms of this coverage, partial benefits can be paid either for a total disability or for a partial disability where you lose 20 percent or more of your income. An example might be if you suffer a heart attack but are able to return to work in three weeks but you cannot work your full schedule – the doctor advised you to work 20 hours per week to start. Once you’re back to work, the traditional disability would stop paying, but the residual benefits would cover the pre-disability income you are losing by working half of your pre-disability schedule.