What is own occupation disability insurance?

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What is own occupation disability insurance?

If you've been shopping for long-term disability insurance—which we certainly recommend for at least a dozen good reasons—you've probably seen the term "own occupation," and maybe its counterpart, "any occupation." The simple rule of thumb is that own occupation disability insurance is preferable, because it's more likely to pay you a benefit if you become disabled.

But not all policies define "own occupation" the same way, which can make true apples-to-apples comparison shopping between policies a little tricky. Below, we'll show you how to decipher this important part of a long-term disability policy so that you'll know exactly what you're paying for.

Total Disability

This is the official term that disability policies use. It's where the insurer lists the exact conditions that must be met in order to qualify for the benefit. Everything you need to know will be listed here, unless the policy comes with any riders or amendments that alter the Total Disability definition. (We’ll address riders at the end of this article.)

Now that you know what section of the policy to look under, let's familiarize ourselves with the two basic occupation types that insurers use when putting together a Total Disability definition for own occupation disability insurance.

1. Your occupation

The occupation you were regularly engaged in at the time of your disability is considered your "own occupation." Some insurers will cast a wider net and say it's the occupation you were engaged in for the 12 months prior to your disability. If you've focused your practice on a specific type of occupation like medicine, dentistry, or law, that may fall under the definition too. However the insurer defines it, it will be explicitly stated here.

2. Occupations like yours or that require someone with your skills

Any occupation for which you are "reasonably suited by means of education, training or experience"—in other words, an occupation that's similar to your previous one or that requires a similar set of skills or experience. For example, if you're a surgeon, a reasonably suited occupation might include a medical school professor, but would probably not include being a chimney sweep.

So you've found the Total Disability section of the policy, and you know the two general occupation types that insurers use. Let's see how insurers put these together into various levels of coverage. Here are the permutations you'll see most often, listed in order from best coverage to worst. Below, we’ll explain them in greater detail, show you how they would apply to a hypothetical scenario, and give real world examples of how they’re described in contracts.
disability-definitions-chart

True Own Occupation - your own occupation, no other stipulations

If you can't work in your own occupation the benefit is paid, regardless of whether you choose to work elsewhere. For example, if you were an airline captain before you were disabled, and then after you were disabled you found a new occupation as a marketing director for a software company, you’d still receive your full benefit.
How it’s described in a contract:

"Own occupation" or "True own occupation"

Sample language:

You are not able to perform the material and substantial duties of your occupation, even if you are gainfully employed in another occupation.

If you meet the definition of totally disabled and you become employed in a new occupation, your total disability benefit will not be affected by any income from the new occupation, regardless of the amount.

Transitional Own Occupation - own occupation with an adjusted benefit

This is the same as the one above except for one difference: if you choose to work in any other occupation, the earnings from your new occupation might reduce the benefit amount. In the previous example, if your full benefit amount was $8,000 and your new marketing position paid you $6,000 every month, your benefit could potentially be reduced to $2,000.
How it’s described in a contract:

"Transitional occupation" or "Transitional your occupation"

Sample language:

[Transitional means] you are unable to perform the material and substantial duties of your regular occupation, but you are gainfully employed in another occupation. The monthly transitional your occupation benefit will be the lesser of:

  • The maximum transitional your occupation benefit; or

  • Your loss of earnings minus benefits received from other disability coverage for that month, but not less than 25 percent of the maximum monthly transitional your occupation benefit.

After the transitional your occupation disability maximum benefit period ends, your definition of disability will revert back to the standard definition of total disability.

[You will] continue receiving disability benefits if you become totally disabled in Your Occupation, but are working in another occupation. Benefits will be paid up to 100% of your prior earnings, but will not exceed the Maximum Monthly Benefit...

Own Occupation, Not Engaged - own occupation and you’re not working

This next variant tightens the definition just a little more by stipulating that the benefit is paid only if you can’t work in your own occupation and you’re not working anywhere else. In our example, you can either stay out of work and receive the full benefit amount or take the marketing director position and not receive any benefit at all.
How it’s described in a contract:

"Own occupation, not engaged" or "Modified own occupation"

Sample language:

You must be unable to perform the substantial and material duties of your occupation and you are not working.

The insured is unable to perform the material and substantial duties of their regular occupation [and] is not engaged in any occupation for wage or profit.

Any Occupation - own occupation and you are unable to work in any other occupation for which you are qualified

Under this definition, you’ll receive your benefit only if you are unable to perform any kind of work for which you’re reasonably suited, even if it’s not your regular occupation. If you were an airline captain before becoming disabled, and now you can teach aviation to students, you probably won't qualify for benefits. However, if your disability prevents you from performing any occupation for which you’re reasonably qualified—you can’t even teach aviation, in our example—you would probably qualify for benefits.
How it’s described in a contract:

"Any own occupation" or "Any occupation"

Sample language:

You are unable due to illness or injury to perform all the substantial and material duties of any occupation for which you are fitted by education, training, and experience.

Bonus Hybrid Version - one definition at first, then a more restrictive definition for the remainder

Some insurers will offer a policy that starts with one of the first three own occupation definitions above, but then after a period of time (24 months, 5 years, etc.) changes to a stricter definition—for example, it may only continue to pay the benefit if you remain unable to work at an occupation for which you’re qualified and do not to work at any other occupation. In our disabled airline captain scenario, you might be paid your full benefit for the first 24 months regardless of your ability to work elsewhere, but after that, if you are able to take the job teaching aviation to students, or if you decide to take the marketing director position, you would no longer be eligible for benefits.
How it’s described in a contract:

This doesn’t have a standard term, but you’ll notice it because it breaks the definition into an initial benefit period and the rest of the benefit period.

Sample language:

After 24 months of total disability, the benefits, if any, for total disability are paid if you are unable due to illness or injury to perform all the substantial and material duties of any occupation for which you are fitted by education, training, and experience, your physician has confirmed your total disability, and you are not engaged in any other occupation for wage or profit.

Finally, there are a couple of other things you should be aware of as you compare policies:

  • Some insurers also require that you be under a physician’s care, unless the physician has confirmed that continued care would no longer be of any benefit. We didn’t include this in the examples above for the sake of clarity.

  • Often a policy will include riders that will overrule some part of the standard Total Disability definition, or extend or improve the benefit period in some way. When you look at a policy, be sure to check whether there are any riders included, because they can dramatically change the scope of the policy’s coverage (usually for the better).

Now you know the basics of how interpret a policy’s Total Disability definition. Sometimes an insurer will shake things up and recombine the requirements in an uncommon way, but so long as you understand the concepts listed above you should be able to unpack this critical part of any long-term disability insurance policy so you can better compare it to others. You can also bookmark this page and use it as a cheat sheet later.

But why not put your new skill to use immediately? Visit our Long-Term Disability quote engine to get started, and we'll send you comparison quotes from up to three different insurers so you can compare their definitions for yourself.

Photo credit: Reading In Public