Clarifying the different definitions of disability is critical when brokers discuss disability income policies with perspective clients.
The definition of disability in a disability insurance policy determines under what circumstances a claim will be paid.
Don’t jeopardize your client relationships by recommending a disability income policy with an inadequate definition for their occupation.
“True” Own Occupation Definition
The “true” own occupation definition is the strongest definition available. It is the most liberal wording of the total disability contractual provision, it applies only one test, that of the ability to perform the duties of one’s own occupation, in determining disability for purposes of paying a policy benefit.
Physicians and dentists and other specialized occupations seek this definition of disability because it allows them to collect their full disability benefit, and have the option to work in another occupation with no offset to their disability benefit.
For example, if a surgeon develops a tremor in his hand and cannot perform surgery, he will collect his full monthly disability payment. Disability benefits are approximately 60 percent of the insured’s previous income. In the case of the surgeon, he can go to work in another occupation to supplement his income without an offset to his disability benefit.
What’s the difference between the “true” own occupation definition and the medical own occupation definition of disability?
The medical own occupation definition will pay the full monthly benefit if the insured is not able to perform the duties of his or her medical specialty, and if not working in another occupation. If the insured chooses to work in another occupation, he or she will receive the difference between his or her full benefit amount and his or her income.
The definition is not as liberal as the “true” own occupation definition. In the case of the surgeon working in another occupation, his disability income benefit would be offset by the difference between his full monthly benefit and his income from the other job.
Transitional Own Occupation
Transitional own occupation is a variation of the True Own Occupation Definition. Transitional Own Occupation will pay benefits if you are totally disabled in your occupation but are readily employed in another, provided your monthly earnings do not exceed or match the earnings from your former occupation. This definition will take you up to, but not over, what you were making before. Think of it as True Own Occupation with a cap.
For example: A dentist starting out in new practice makes $8,333 per month becomes disabled and takes a job as a consultant that pays him $5000 per month. A person earning $8,333 per month qualifies for a $5,000 monthly disability benefit or 60 percent of his salary. The benefits payable under the Transitional Own Occupation definition would be $0 per month because the transitional own occupation benefit is offset by any income the dentist earns in another occupation. The dentist job as a consultant provided 60 percent of his former salary, so he does not qualify for any additional benefit with the transitional own occupation definition of disability.
However, if he had a “true” own occupation definition of disability, he could collect his $5,000 monthly disability benefit on top of his $5,000 monthly salary as a consultant.
For medical professionals, a “true” own occupation definition of disability is the better choice because it is the most liberal definition of disability available. It pays the full monthly disability benefit even if the insured chooses to work in another occupation.
Modified Own Occupation
Modified own occupation will pay benefits if the insured is unable to perform the duties of his or her occupation and is not working in any other gainful occupation.
This is a very suitable definition for many professionals who do not have specialized skills. For example, if an insurance broker cannot make calls, operate a computer or drive a car, he will not be able to perform the duties of his occupation, and he will not likely be able to perform the duties of another occupation either.
His skills are not as specialized as a surgeon’s. If he can’t perform the duties of his occupation, he likely will not be able to perform the duties of another occupation.
It’s important that brokers have a good understanding of the different definitions of disability in the disability income policies they present and sell to their clients.
When you partner with Source Brokerage, our disability income specialists not only help you understand the different definitions of disability, but they help you determine the most suitable definition of disability for your client’s occupation.