Total Disability vs. Residual Disability

A DISTINCTION WITH A DIFFERENCE

By Long-Term Disability Lawyer Ray Bourhis

Many long term disability insurance policies contain provisions regarding both Total and Residual (Partial) Disability benefits. Typically, the policies define Total Disability as the inability to perform the substantial and material duties of your regular occupation; Residual Disability is defined as the inability to perform “some” of the duties of your regular occupation.

State insurance laws, which, of course, always trump the language used in the policies, often add the concept of “reasonable continuity” to the definition of Total Disability. In other words, a full time insured is deemed totally disabled even if he/she can perform his substantial and material duties if they can no longer do so on a full time basis.

The question is, can a claimant be unable to perform “some” of his substantial and material duties” without being unable to perform “his substantial and material duties”?

The obvious answer is no.

So, are all of those claimants being paid residual benefits being cheated? The obvious answer is yes.

So what’s the difference between being paid under Residual versus being paid under Total?

For one, benefits under Residual Disability are paid pursuant to a loss of income calculation whereas Total Disability benefits are paid in a fixed (larger) amount. Typically, residual benefits are calculated on the basis of a formula such as one providing that “the Residual Disability Monthly Benefit will be equal to the Monthly Benefit shown on the Schedule Page multiplied by your Percentage Loss of monthly Income.” In practice, your insurance carrier will establish a pre-disability income and then look at how much you make after your disability to determine your percentage of lost income. The insurer will then issue a monthly benefit that is claimed to represent your lost income. However, as inflation and service/fee charges increase, the residual amount payable decreases. Right up to the point, for example, that a part time medical doctor’s residual benefit is zero.

Second, with many policies, Total Disability benefits are payable for the claimant’s lifetime whereas Residual benefits are cut off at age 65. Depending on the amount of the monthly benefit, this difference can amount to hundreds of thousands or even millions of dollars.

For these and other reasons, a disability insurance company may try to pay you on the basis of residual rather than total disability. Despite the above, many policy holders accept a decision by their insurer to pay them on the basis of residual as opposed to total disability. What’s worse, many attorneys who hold themselves out as experts in this field are unaware of the import of this issue.

What to do BEFORE you file your long-term disability claim.