Disability insurance replaces a portion of your work earnings if you are sick or hurt and cannot work. Part of your financial planning process includes understanding the types of insurance coverage that are in place to protect your ability to work and earn. Different clauses in a disability policy -- such as the zero-day residual clause -- affect how much benefit you could receive from the policy.
Short-Term Disability Features
Short-term disability coverage provides replacement income for up to two years if you are out of work. The amount you receive and the maximum time you can receive benefits are listed in the policy. Typically, short-term disability replaces about 60 percent of your working income if you get sick or hurt. The elimination period is the number of days you must be out of work before you can collect short-term disability. Elimination periods range from one to 14 days, often with a different time period for injury compared to illness. A residual disability benefit allows you to collect disability payments if you can only work part-time due to an illness or injury.
Residual Qualification Period
After the elimination period of being out of work, disability policies with residual coverage have a qualification period before you can go back to work part-time and receive disability benefits under the residual coverage clause. If there is a residual qualification period, you must be totally disabled for a period of time before you can collect residual benefits. A zero-day residual on your disability policy means that disability payments to you will begin after the elimination period if you are fully or partially disabled. If you cannot work full-time due to an injury or illness, the zero-day residual means you will still receive a partial disability payment for the amount of time you cannot work. Without a zero-day residual clause, you first have to be fully disabled for a period of time before you can work part-time and receive benefits.
Zero-Day Start Point
The zero-day start for residual disability benefits is dependent on the elimination period for the disability insurance. If you qualify for disability payments after a seven-day elimination period, the residual coverage also becomes effective after the same seven days. This means that after losing work due to injury or illness for seven days, you will receive the full amount of disability coverage if you cannot work at all or a partial disability payment if your medical problem keeps you from working full-time.
A zero-day residual clause in your short-term disability coverage gives the coverage more value and flexibility. You should review the policy's definition of disability while you are healthy and working. Then, if something happens and you need the disability payments, you will know the required steps to make a claim and receive the payments. Using the residual coverage for a partial disability payment plus earning money from working part-time typically results in higher take-home pay than if you were on full, short-term disability.
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