The definition of disability is the most important part of any disability insurance policy because it triggers the claim.  However, it can be challenging to determine the definition of disability that best protects your client in their occupation.

For some individuals, a true own-occupation disability insurance policy is absolutely the best choice. For others, it might not be worth the cost. Before buying or recommending a policy, it’s important to know the “ins and outs” of each choice.

In this blog, we explain the different definitions of disability available and how they impact the insured:

True Own-Occupation Definition:

Own-Occupation coverage is the ideal definition of disability for physicians and some professionals. It offers the broadest protection by paying the full benefit if the insured can no longer perform the material and substantial duties of their specific occupation or specialty, even if they can work in another capacity.

Example: Dr. Adams, a surgeon, who developed a tremor. She is unable to work as a surgeon. She has a disability insurance policy with a true own-occupation definition of disability. She does not want to stop working, so she decides to teach in the local medical school. Nevertheless even though she chooses to work in another occupation, she will still collect her full disability benefit for the entire benefit period.

Her monthly income before disability was $11,000, and after disability, she started working as a teacher, earning $6,000 per month. With a True Own-Occupation policy, she would receive a $11,000 monthly benefit in addition to her $6,000 teaching income, resulting in a total monthly income of $17,000.

The language in a true own-occupation policy should clearly state that the insured is considered Totally Disabled if they are unable to perform the material and substantial duties of Your Occupation, even if they are gainfully employed in another occupation solely due to Injury or Sickness. This ensures that their financial security remains intact, even if they pursue a different career path within their capabilities.

Transitional Own-Occupation:

While True Own-Occupation is the most favorable option, it’s essential to understand other definitions that can sometimes be mistaken for it. Transitional Own-Occupation is one such definition that offers similar benefits, with a minor limitation. If the insured transitions to another occupation due to disability, the insured’s total net income (including benefits) cannot exceed the total monthly income they earned before their disability. However, the policy continues to provide coverage up to 100% of their prior earnings.

For instance, let’s consider Dr. Adams situation. Her monthly income before disability was $11,000, and after disability, she started working as a teacher, earning $6,000 per month. With a Transitional Own-Occupation policy, she would receive a $5,000 monthly benefit in addition to her $6,000 teaching income, resulting in a total monthly income of $11,000.

Modified Own-Occupation:

In contrast, a Modified Own-Occupation policy provides benefits only if the insured is unable to work in their own occupation and are totally disabled. However, benefits cease if the insured decides to work in a different profession.

This type of a policy works well for occupations that are not specialized, such as a marketing manager or a IT manager. In all likelihood, it they can’t perform the duties of their occupations, they are not likely able to be able to work in another occupation because their duties are more universal to most occupations—operating computer programs, talking on the phone, driving, etc…

The language within a Modified Own-Occupation policy typically states that the insured is considered totally disabled when unable to perform the principal duties of their regular occupation and not gainfully employed in any other occupation.

Any Occupation:

We strongly discourage clients from opting for an Any Occupation policy. This common disability definition is usually found in employer group plans and low-cost individual policies. Under an Any Occupation policy, insured is deemed disabled only if they cannot work in any occupation reasonably suited to their education, training, or experience. This definition provides the least beneficial coverage for professionals, as it gives the insurance company the greatest leverage.

For example, if an insured is capable of working in another industry, and there are open positions that they qualify for, even if they don’t apply for them, they may no longer be considered totally disabled.

In conclusion, True Own-Occupation Disability Insurance is the recommended choice for medical professionals, as it provides the most comprehensive coverage and flexibility. However, a modified own occupation definition is well-suited for other occupations and it is less costly.

Source Brokerage is dedicated to securing your clients’ financial future, and our team of experts is ready to assist you in finding the right Own Occupation Disability Insurance policy that meets your client’s specific needs.

Questions? We have the answers. Let’s get started. Contact Steve Crowe at ext. 222,  or request a quote.