I remember when I was studying for my insurance license and I came across the disability insurance section. I was sitting in my sales manager's office going through items and I commented that own-occupation was obviously far superior to any-occupation. Little did I know my little intuitive observation lay at the core of disability insurance comparison. It may seem unimaginable, but the definition a disability insurance policy uses can vary a lot among carriers, and this definition certainly separates the good from the bad.
If You Liked Contracts, You're going to Love Disability Insurance
Oh wow, a law school joke. No really though, contract language on a disability insurance policy is pretty important. The good news is, every company with a product is willing to recite their contract language when it comes to the definition of disability and every agent who actually understands disability insurance can pretty much recite the contract language of just about every company's product out there.
Any-Occupation Definition Disability Insurance
Any-occupation (or any-occ) means that the insured is considered disabled and eligible for benefits if he or she lacks the ability to perform the material and substantial duties of any occupation for which he or she is appropriately qualified/trained. What this essentially means is, if you are sick or hurt and unable to do what you currently do for a living, and can reasonably find employment that will pay you 60% of what you currently earn (gross income), you're policy isn't going to pay you a dime, because you do not qualify for benefits under it's definition of disability.
Own-Occupation Definition Disability Insurance
Own-occupation (or own-occ) means that the insured is considered disabled and eligible for benefits if he or she lacks the ability to perform the material and substantial duties of his or her regular occupation regardless of ability to work in a different occupation. Meaning if sickness or injury prevents you from doing what do now do for a living, you will receive benefits from your policy because you qualify for benefits under its definition of disability. This means that if you can work in a different occupation, even if you can make more money working in a different occupation, you will still be paid benefits under your policy, because the one and only triggering event is your loss of the ability to work (earn and income) in your regular occupation.
Modified Own-Occupation Definition of Disability Insurance
Modified own-occupation (or modified own-occ) mean that the insured is considered and disabled and eligible for benefits if he or she lacks the ability to perform the material and substantial duties to perform his or her regular occupation, but will only receive benefits if the insured remains unemployed. Meaning (most typically) working in a different occupation will reduce your benefit.
So Own-Occupation is the Best?
Own-occupation is certainly the strongest contract language that leaves you in fewer circumstances where you may not receive benefits if sick or hurt and unable to work. But it's not the ultimate choice. Individuals in highly skilled professions requiring large amounts of education and/or specialized training tend to seek own-occ policies, but that's not the only requirement.
Those who have honed a skill within a profession also have a sincere appreciation for the own-occ definition (e.g. you may be an attorney who works primarily in an office setting today, but you may end up becoming a master trial attorney who derives the majority of your income by arguing cases in court).
But, there are certainly a large number of people out there whose profession requires a significant illness or injury to remove them from work. For them, the extra cost of pure own-occ coverage is probably not worth the benefit.
So, Own-occ, Modified Own-occ, and Any-occ is all I need to Know?
Not exactly. There are a few other little pieces that get tied into the definition of disability. These pieces inlcude:
- The triggering loss
- Medical care requirements
- Occupation definition
Triggering loss refers to what you must prove as lost to receive benefits; most of the time this is simply income. So, as an example I can't work, which means I can't earn income, I'm eligible for benefits. Sometimes however, a loss of duties is also tucked into the contract. Now, it may seem trivial, since a loss of duties would intuitively cause a loss of income and when it comes to total disability this wouldn't really be an issue.
However, disability products also have partial benefit riders (known as residual benefit riders) that can be dramatically effected by this.
If injury or illness reduces your productivity which in turn causes you to earn less, but you are still able to perform all of the material and substantial duties, then a loss of time or duties clause may prevent you from collecting benefits.
Medical care requirements are typically straight forward. The requirement is that you must be under a doctor's care while sick or injured and unable to work to receive benefits. This makes sense in large part because the insurance company will take guidance from the doctor to determine the severity of your sickness or injury. Best to have your personal doc be your liaison rather than some claims representative from the insurance company.
Occupation definition is how the insurance company defines your own occupation. Is it what you said your occupation was when you originally applied for coverage? Is it what you've done for the past year, two years, etc? This is important. If you switch jobs or professions, it would certainly be helpful if your policy continued to cover you.
That's it for now on definitions. As mentioned earlier, we'll be tackling a lot of individual disability insurance topics this month; if you have additional questions on this product, don't hesitate to contact us.