California Life-Only & Accident and Health AgentRelated Benefits and ProductsMedium
A 40-year-old construction worker earns $6,000 per month. He has a 'residual disability' rider on his disability income insurance policy. After an accident, he returns to work part-time, earning $2,000 per month, but is unable to perform all his previous duties. If his policy has a 60% benefit percentage, how much will his residual disability benefit be?
- A$3,600
- B$1,200
- C$1,600
- D$2,400
Show answer & explanationAnswer & explanation
Correct answer: D. $2,400
First, calculate the full disability benefit: $6,000 * 60% = $3,600. Then, determine the percentage of income lost: ($6,000 - $2,000) / $6,000 = $4,000 / $6,000 = 0.6667 or 66.67%. Finally, multiply the full benefit by the percentage of income lost: $3,600 * 0.6667 = $2,400.
Why the other options are wrong
- A. This is the full disability benefit, not the residual benefit based on reduced earnings.
- B. This calculation is incorrect; it might result from using the remaining income rather than lost income percentage.
- C. This calculation is incorrect; it might result from using the remaining income rather than lost income percentage.
Residual Disability Benefit
A rider in a disability income policy that provides benefits for partial disability, calculated as a percentage of the full disability benefit, proportional to the income lost due to the disability.
- Allows the insured to return to work part-time.
- Compensates for loss of income, not total inability to work.
- Benefit is often calculated based on the percentage of pre-disability income lost.
Memory trick: Disability: Full or Partial, income security for all.