Own-occupation policies allow you to claim disability insurance benefits even if you can earn an income doing something other than your most recent job.
Disability insurance protects you from the financial risk of losing your income when you become so sick or disabled that you can’t work. The degree to which you have to be disabled to qualify for disability insurance benefits under your carrier’s policy is described in a section about the definition of disability.
You have to meet the policy’s definition of disability in order to qualify for full disability insurance benefits. However, disability insurance policies differ on what they consider “disabled enough” for benefits. In some cases, if you can work any job, even a low-paid one, you won’t qualify for benefits under the disability insurance company’s terms. This type of policy is called an any-occupation policy. Because the bar for claiming disability insurance benefits is much higher – meaning that the carrier is less likely to have to pay out – any-occupation disability insurance is often relatively inexpensive.
The other most common type of disability insurance is own-occupation. Also called regular-occupation disability insurance, this type of policy allows you to claim disability insurance benefits even if you can earn an income doing something other than your most recent job. That means you have to be disabled, but not so disabled that you can’t work at all. The carrier has a much higher likelihood of approving your disability claim under this type of policy.
Own-occupation disability insurance is the most lenient type of policy, and also the one that best protects your income; if you can’t satisfy your disability insurance company’s definition of disability, what’s the point of paying premiums? While you’ll pay more for own-occupation disability insurance, it’s also the best way to make sure you’re getting the most out of your coverage.
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Your disability insurance policy will thoroughly describe the situations under which you become eligible to receive disability insurance benefits. These are called the definitions of disability, and they define different thresholds for claiming benefits. Every insurance company is different and may even offer different types of insurance policies, so make sure you read over your policy to make sure it contains what you need.
Some of the most common definitions of disability are:
Total disability: You’re unable to continue working in your current or most recent occupation, but you’re receiving care from your doctor in the hope that you’ll recover from the injury or illness that caused your disability. Whether you can receive disability insurance benefits under the total disability provision hinges on whether you have an own-occupation or any-occupation policy. What counts as your occupation depends on your carrier, but the company choose to define your occupation as any for which you are "reasonably suited by means of education, training or experience.”
Partial disability: You develop an injury or illness that isn’t so severe as to keep you out of work, but which does reduce your responsibilities or pay, and for which you’re receiving care from your doctor. Partial disability benefits may be paid whether you have own-occupation disability insurance or any-occupation disability insurance. Insurers use a special formula to determine what percentage of benefits you’re eligible to receive in relation to how disabled you are.
Presumptive disability: You suffer an injury or illness so debilitating that the disability insurance company considers your disability permanent. Since there’s no possibility of recovery, the disability insurance company will pay you benefits whether you have an own-occupation policy or an any-occupation policy.
Under the total disability definition, you may be denied benefits if you have an any-occupation policy. That’s why you should have an own-occupation policy. But even which such a stipulation, there may be variants that slightly change the way your own-occupation coverage works. This table explains compares the different forms in which own-occupation disability insurance may appear. Later, we’ll explain what they mean in more detail.
To qualify for insurance benefits under each of the own-occupation definitions below, you must be able to answer “no” to every question in that column.
|True Own-Occupation||Transitional Own-Occupation||Own-Occupation, Not-Engaged ("Modified Own-Occupation")||Any-Occupation|
|Can you work in your own occupation?||Can you work in your own occupation?||Can you work in your own occupation?||Can you work in your own occupation?|
|Are you working in another occupation and earning more than you did previously?||*Are* you working in any other occupation?||*Can* you work in any occupation for which are you are fitted by education, training, and experience?|
When you become disabled and you become eligible for disability insurance benefits under your policy’s total disability provision, if you have a true own-occupation policy you can claim benefits even if you choose to work somewhere else.
Your disability insurance policy will describe true own-occupation coverage as simply “own-occupation” or “regular occupation.” Some policies will consider your whole professional specialty, such as medicine or law, as your occupation. Talk to your insurer about how it covers your profession.
If you’re unemployed at the time you become disabled, the insurer will consider your occupation to be the last job at which you worked a certain number (usually 30) of hours a week.
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 coverage is own-occupation coverage with an adjusted benefit. This type of policy takes into account your earnings from the job you take while disabled.
Say your disability coverage is for $8,000 per month when you become disabled and can’t do your own occupation. While you’re eligible to continue receiving benefits if you take a new job, under transitional own-occupation coverage, your benefits may be reduced by your salary from your new job. If your new salary is $6,000, your benefits may be reduced to $2,000. The exact amount she be spelled out in your disability policy.
[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…
Also called modified own-occupation coverage, own-occupation, not-engaged coverage tightens the definition for own-occupation disability insurance by making you ineligible for benefits if you work another job. You can still receive benefits if you can take another job, just not if you actually do take the job.
The difference between this type of provision and any-occupation coverage is that under any-occupation coverage you are ineligible for benefits even if you don’t take a job that you can work.
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.
Under any-occupation disability insurance, you’ll be ineligible for disability insurance payments if you have the ability to work another occupation, regardless of whether you actually take another job. This is the strictest provision under definitions of disability. While it could result in lower premiums during the life of the disability policy, you may end up losing out if you become disabled but find you can’t claim the benefits you’d been paying for all that time.
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.
Insurers sometimes offer hybrid policies that combine own-occupation coverage with any-occupation coverage. Under such coverage, if you become disabled under the total disability provision, you may be eligible for own-occupation coverage only for a period of time, after which the coverage switches to any-occupation.
The length of time before the policy switches over is defined in your policy. During that initial benefit period, you claim disability insurance benefits even if you can do work other than your regular job (own-occupation). After initial period ends, if you’re still able to do other work, you’ll no longer be eligible for benefits (any-occupation) and your monthly benefit will cease.
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.
Zack Sigel is a SEO managing editor at Policygenius. He covers personal finance, comprising mortgages, investing, deposit accounts, and more. His previous work included writing about film and music.