“YOU CANNOT BE PARTIALLY DEAD!”

As the title of this issue clearly states (and as all of you hopefully know) partial death does not exist. You are either dead or you are alive. Disability, on the other hand, is not an “either/or” situation. You may be totally able to work; totally unable to work; or your ability to work has been reduced. It depends on the specific condition that you may have; the stage it is at (early or advanced); the type of work that you do; even the motivation you have to work. For example, the whole concept of “pain threshold” is very subjective. I may be severely affected by slight pain; whereas you may be able to work in almost utter agony. Also – if I am a truck driver, total disability is much more likely than if I am an office worker; particularly if my job largely consists of knowledge and communication. For example, if I work at a desk answering phone calls from customers, voice-operated technology would allow me to continue working in a state of health which might seriously impact me if I worked in construction instead.

Imagine a situation where fire caused $50,000 damage to your $100,000 home, and your insurer told you that since it was not a total loss; they are not liable to pay! Given that not all disabilities are total, it can be very important to have coverage against both total and “non-total” disability.

That being said, there are two approaches to insuring “non-total” disability.

            The first approach – “partial disability” – looks at what parts of your job you can do and/or how long you can work for. It insures your time and your duties. Officially, the definition states that you “must be unable to perform one or more of the important duties of your regular occupation or that you must be able to perform all of the duties for less than half the time normally required to perform them.” This definition does not consider the income you earn while “partially disabled”. Generally, it pays 50% of the basic monthly benefit for as long as 36 months (depending on the carrier) of partial disability; then the benefit reduces to 25%.

            The second approach – “residual disability” – defines disability based on the income lost due to disability. If the loss is less than 20%, no benefits are payable. If the loss of income is between 20% and 80%, benefits are paid equal to the loss of income. If the loss is 80% or more, full benefits are paid.

I often say that “partial” insures what you can do and “residual” insures how well you do it. Which is “best”? Frankly, it depends on YOU and your situation at the time you become disabled. If your income is significantly related to your efforts - if you bill (or are paid) for hours worked or paid based on your own success (commission sales, for example) then “residual” is probably best for you. On the other hand, if you are “protected” by employees - if your income is less dependent on your own efforts OR if you prefer not to submit financial information during a disability, then “partial” may be best.

There is no question that it can be easier to collect “partial” benefits, but the trade-off is that if income is significantly affected by your disability, you may not collect as much as you would under the “residual” option.

How long are benefits payable? They may be payable for 6, 12, or 24 months or for 5 years or to age 65.  Generally speaking, the shorter durations are for “partial” benefits; and 24 months or longer usually offers both forms.

Products may offer only partial benefits, only residual, or both.

Another issue to consider is that our situation may change with time. What may be best for us in 2010 may not be the best choice in 2016. The most flexible contracts offer both partial and residual and allow you to choose at time of claim the one best suited for your situation at that moment.

The important thing is to have SOME protection against non-total disabilities. This means that you will not be faced with an “all or nothing” situation should you become disabled. Your lifestyle will be protected no matter how the disability affects you.

Back in 3 weeks to look at some other optional features that may be attractive.

Click these for more information on the respective topics :
Long Term Care Insurance
Disability Insurance
Critical Illness Insurance
Life Insurance
Mortgage Insurance