Having Residual Disability (or Partial Disability) provisions in your policy can be the most important decision you (or your insurance consultant) make when you bought (or if you are considering buying) your Individual Disability Insurance policy. If you are eligible for Long Term Disability Insurance (Group) coverage from your employer, most probably, the definition of Disability includes a Residual component. However, having the coverage and getting paid under that coverage may cause you to be subjected to some creative “refinancing” of your financial information as assessed by your Disability Insurance Company.
The beauty of Residual Disability coverage is that it provides partial benefits if you suffer a disabling condition that doesn’t entirely prevent you from performing your own occupation/your specialty. Most Residual Disability provisions include a loss of time or duties provision (for example: the inability to perform one or more of your material and substantial duties or you can perform all material and substantial duties but for less time than prior to the onset of your disabling condition) and a loss of income requirement, usually 20-25% compared to your pre-disability income.
While each policy may contain different language, and each claim is unique and must be considered individually on its own merits, if you satisfy these Residual Disability requirements, you would be eligible to receive part of your monthly disability benefits even while you continue to work in your specialty.
Conversely, the Residual Disability provision can serve as an important bridge as you return to work after being Totally Disabled, which can often compliment your recovery from your disabling medical condition by allowing you to gradually increase your work activities consistent with your medical restrictions and limitations, and remain eligible to receive partial benefits, while you are getting paid, subject to satisfying the same provisions above.
As I have religiously said in multiple articles before, you must know and understand your contract, and the interrelationship between its various provisions, in order to insure your entitlement. “Life is good,” if you have Residual Disability Benefits at your time of need. Well, not so fast. Not if your Disability Insurance Company is in the way of you getting paid. While the satisfaction of the Residual Disability provision of your policy may seem pretty straight forward, you need to pay major attention to the “small print.”
After you file your claim, your Company will do the usual “own-occ” work-up. It will assess all of your duties, and your work activity globally, and then determine, qualitatively and quantitatively, what it deems material and substantial/important/essential to the performance of your specialty. There is no hard and fast rule as to how the Company will determine materiality/ substantialness/importance, etc. It will look at and consider everything you do “work-wise” as part of its occupational evaluation. If you can navigate your way through the claims process in order to satisfy the Company that your medical condition prevents you from performing one or more of your material and substantial duties through the time or duties test (certainly much easier than establishing Total Disability) and you are receiving, what is most often, appropriate medical care, you would be entitled to Residual Disability Benefits. (Please refer to the articles in Physician’s News Digest, April 2006 for “Own-Occupation,” and in May 2004 for “Appropriate Medical Care”).
The bottom line is that being able to receive your Residual Disability benefits may come down to satisfying one small sentence in the Residual Disability provision of your policy. And that satisfaction may come down to one simple calculation, the 20/25% loss of income threshold. Unfortunately, you may find that “simple” was never so complicated or so intensely contested by your Disability Insurance Company.
Essentially, as per your policy, your Company is obligated to determine your highest “prior monthly income,” which it will use as a base month to which it will compare your after disability income. It is also obligated to perform an after disability monthly income calculation, also per the policy, often called “current monthly income.” Theoretically, when the current monthly income is compared to the prior monthly income and results in an earnings loss that satisfies or exceeds the loss threshold, a proportionate benefit should be paid under the Residual provision. If the income loss is so great, usually 75% or more, a 100% of the monthly benefit is commonly paid.
The problem is that buried in your policy, is a “hidden treasure” of language, on a line-item basis, that can be employed by your Disability Insurance Company in order to possibly reduce your monthly entitlement or refute your benefits entirely. You have heard the saying that “money has mind of its own.” Well, that’s not if your Company can help it. After your Company receives your financial information, it will be methodically assessed by its financial department, including one or more of its team of CPAs. They will help “map” out a strategy which will more than likely categorize your income in a way most beneficial to the Company=s position. You may very well find that the Company=s assessment may be more “mythodical” than “methodical.”
The longer the economy struggles, the more creative the Company’s maneuvering. Much of the recent economic press revolves around the depressed real estate market and whether or not one=s particular mortgage company is willing to offer “refinancing” of existing mortgages in order to help alleviate the housing problems. However, little attention is paid to your Company’s
respective “refinancing” of your financial information, which is required in consideration of your claim, in order to help alleviate the Company’s liability. This is the new battleground. Even if you, your CPA, and the IRS accept the appropriateness of an income tax filing, that does not necessarily mean your Disability Insurance Company will agree with that determination, as it applies to your policy.
Do your homework before you consider and file your claim. Keep a file of all pertinent information to substantiate your position. Always know and understand your policy and especially how the most relevant provisions interrelate with each other. Be prepared for a potential contentious claims process, and possibly whatever may follow. Your goal is to make sure that your financials can’t be reconfigured by your Company, to your disadvantage. Don’t let your Disability Insurance Company teach your dollars more cents!
Mark F. Seltzer, Esquire is the founder of Mark F. Seltzer & Associates (www.seltzerlegal.com), a boutique law firm which dedicates its practice to representing physicians, health care practitioners, and professionals in all aspects of disability insurance claims and cases, and professional licensure matters. Mark can be reached at 888-699-4222.