Residual disability rider: What is it & is it worth it?

Losing income because of an unexpected disability can be stressful. Not only does it affect your way of living, but it also can take a toll on your family relationships as you all adapt to a new normal. While you already may have disability insurance in place to add a layer of security, certain specifications and limits on total disability insurance contracts can restrict your benefit if you don't meet all the qualifications.

A residual disability rider, which is an add-on you can get at an extra cost, can supplement your benefit and help cover what total disability doesn't. While no insurance contract is one-size-fits-all, riders like residual disability can provide additional flexibility and security.

If you face an injury or illness, it can be difficult to qualify for a total disability benefit. Depending on what type of insurance contract you have, you may have to prove you cannot do the work your current job or any job requires. And the loss of income because of your injury must be substantial—usually 80% or more of your pre-injury earnings. A residual disability rider can protect your income if you're disabled but don't meet total disability requirements. It acts as a safety net, paying you a percentage of your total disability benefit and allowing you to continue caring for your family.

An insurance contract may have a partial disability benefit built in. It's not a rider, so it doesn't cost extra. If your insurance has this provision and you become partially disabled, you may receive a percentage of your total disability benefit. However, it may hinge on how much income loss you experience and often only lasts for a limited time.

With a residual disability rider, you can continue receiving a portion of replacement income even if you have a partial disability benefit that ends. Residual disability coverage lasts until the benefit period outlined in your contract ends.

When you're responsible for providing for yourself or your family, protecting against loss of income is essential. The challenge in selecting disability insurance, however, is that total disability is most helpful in worst-case scenarios, but you also may need coverage for less catastrophic situations that are more common.

Supplementing your income when you can't work at full capacity could be the difference between depleting your savings and staying on track financially. It also means you can keep working toward your long-term financial goals, like paying off your mortgage or saving for retirement.

Here are the key benefits a residual disability rider can provide, depending on your individual contract:

• You may receive a percentage of your total disability benefit even if you don't qualify for total disability. 
• The residual disability benefit will last until the benefit period specified in the contract ends. 
• You may be able to continue working part- or full-time while you receive benefits. 
• Your provider may waive premium payments during consecutive months of disability. 

While you may never need residual disability, it can be worth it to have confidence you're protecting your income and family as best possible.

You'll generally have to show that your disability limits you to earning 20%-80% of your income to qualify for residual disability benefits. Your insurer also may ask you to provide a doctor's report or other documents supporting your claim. The requirements can vary, so it is important to speak with your financial advisor to fully understand the benefits and qualifications.

Residual disability benefits are calculated as a percentage of your total disability benefit, which is usually a flat monthly payment outlined in your contract. Insurers consider multiple factors when calculating residual disability benefits and how long you'll receive them:

• Amount of your total disability benefit 
• Percentage of your income lost due to injury 
• Time remaining on the benefit period 
• Your age 

For example, say you have a total disability insurance contract that pays $8,000 monthly if you become fully disabled. Suppose a disability limits you to earning 70% of your earnings before getting injured. Your residual disability will cover the difference. You'd receive 30% of your total disability benefit—$2,400 each month.¹

Some providers may offer enhanced options on residual disability riders, such as paying a higher monthly benefit or offering a longer benefit period. You'll likely pay more for an enhanced benefit or other add-ons, so be sure they meet your needs.

It can be difficult to think about the possibility of not being able to provide for your family as usual. But if it happens, a residual disability benefit added to your disability insurance can replace income from lost wages—helping protect your family and your future.

Consider connecting with a Thrivent financial advisor, who can help you assess whether it makes sense to add a residual disability rider to your financial plan.