Disability Income Insurance 101: Own Occupation

May 23, 2017Richard Reich

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The most important feature of a disability income insurance policy is how the insurer defines “disability.” The most important thing about this critical definition is that it should cover as many scenarios as possible, rather than as few as possible.

On the landscape of disability insurance, there are two primary categories of definition: own occupation and any occupation. The “any occupation” term is much more restrictive to the policyholder. This definition means that if you, the insured, cannot perform any occupation, the company will pay the benefit. With the “own occupation” term, if the insured cannot perform their own occupation, regardless if you are able to perform another job, the insurer will pay the disability benefit. Let’s dig a little deeper to make certain this is clear.

Any Occupation

The “any occupation” term is always more favorable to the insurer rather than the insured. For example, you have been working at a machine shop fabricating important machine parts for an airline company and earning about $120,000 per year, and you are seriously injured. If your disability insurance policy defines disability as “any occupation” and you are able to sweep the floor in the machine shop or keep the break rooms and bathrooms clean, your insurer would not consider you to be disabled and would not pay the benefits for a machine shop operator.

This type of disability insurance contains the most limited definition of disability and will likely never respond to a claim if you could walk or get around in a wheelchair.

True Own-Occupation

The True Own-Occupation policy covers the insured that has become disabled and is unable to perform the majority of the duties in the occupation they have been trained in.  A disability policy that defines disability as your true own-occupation provides the most liberal benefits available. Even if you had the capability of working in another occupation (or specialty, in the case of physicians), unless you are able to return to your true own-occupation, your insurer would still consider you disabled. This definition of disability is considered to be the exact opposite of any occupation coverage.   This type of disability policy is typically used by medical and dental professionals or lawyers that work in a specialty class of their occupation.

Modified Own-Occupation

The modified own-occupation definition is similar to own-occupation but goes one step further. Modified own occupation means the insured is unable to perform a specific occupation that he or she was engaged in at the time of disability, and is not working in another occupation.   If one chooses to work in another occupation, they would not be eligible for disability insurance benefits.

 

Other Terms and Definitions that define Your Disability Benefits

Although the definition of disability in the policy you select is considered the most important aspect of the coverage provided, there are other important terms the applicant should understand in order to make an informed purchase decision:

  • Activities of Daily Living (ADLs)The ADLs are the routine personal activities that a person tends to every day without needing help from another. Insurance companies consider the following as the basic ADLs: eating, bathing, dressing, walking, toileting, and continence.
  • Cost of Living Adjustment (COLA) If elected, this benefit will raise the monthly benefit paid out each year one is disabled, based on the change in the cost of living.
  • DeductibleThe initial amount of expenses that are paid out of pocket before the coverage benefit begins.
  • Elimination PeriodThe period of time that must elapse in a long-term disability policy before benefit payments begin, also known as the waiting period.
  • ERISAEmployee Retirement Income Security Act – The federal law that regulates Long-Term disability policies that are offered by an employer.
  • ExclusionsA list of specific reasons or conditions that disability insurance will not cover. For example, self-inflicted injury.
  • Material Duty (Duties) – A set of tasks or skills that are required in your specific occupation which is used to help the claims adjuster determine whether you are disabled under the terms of the contract.
  • Maximum Monthly BenefitThis represents the highest benefit amount a disabled employee can receive on a monthly basis under a Long-term disability plan.
  • Pre-existing Condition – This is a medical condition that exists before the effective date of the policy and for which the insured has received medical care or has been diagnosed.
  • Pre-existing Condition Exclusionary PeriodThe period of time when an insured’s pre-existing condition will not be covered under the policy.

These are some of the most important terms to become familiar with when you are considering a Long-term disability policy. For a complete list of terms regarding disability insurance, please click here.

 Like any type of health insurance product, disability insurance can be very confusing and sometimes even stressful for consumers to deal with. We encourage you to contact the insurance professionals at Protect Your Income at (866) 691-0100 during normal business hours, or you can contact us through ProtectYourIncome.com contact us through ProtectYourIncome.com 24/7. 
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