When setting up a Character, the Root CapsuleComponent’s collisions and trace response settings will override any change in it’s CharacterMesh, preventing any per-bone localized damage with a LineTrace.
After trying to find a workaround for your issue I came up empty handed and so I have submitted a feature request to the development team(Jira report UE-4565). If you find a viable solution I would be interested to know.
Still suffering from this issue. Extremely annoying. Have you ever found a fix for this? As long as I have my blueprint with parent class Character it will justnotwork.