Traditional Coverage: All the Way, or No Pay
In a previous post, we gave you a very general description of the two types of disability income insurance coverage – traditional coverage and residual coverage. Now we will look a little deeper into each of these types of coverage and the specific roles they play in insurance and financial planning matters.
Traditional disability income insurance has been very important in helping families pay bills when a breadwinner is disabled due to illness or injury. However, one reason that disability claims are often very long (could be two years or longer on average) is because the traditional coverage only pays when the insured is out of work. Once that person returns to work – even if only a part-time basis – all benefits stop. The coverage is meant to cover 60 to 70 percent of the insured’s lost monthly income when he or she doesn’t work at all, but if that person is partially recovered and can work 20 hours per week but not the full 40 as before the disability, the insured will get zero benefit from the insurance and would instead have to manage on 20 hours per week.
When a person only has total disability coverage, a person who may be able to go back to work part-time, instead may not because he or she may get benefits that are better than if he or she went back to work. So many people under this coverage will stay away from work until they can return completely and do a full workload like before the disability.
With the traditional disability coverage, it’s either all the way back or nothing. There is no “easing back” into the workforce. It is all or nothing.
The good news is, many companies offer a residual income component to their policies for certain occupations – especially those that are deemed lower-risk. Like doctors or dentists!