A lot of insurance agents shy away from selling individual disability insurance simply because it can be a complicated product. One reason for the complication is that the rates are dependent upon each client’s occupational risk class. To complicate matters even further, each carrier has different guidelines on how they assign disability insurance occupation classes.
The good news is that you don’t need to understand every aspect of each carrier’s disability insurance occupation class system. By just learning the basics, you can navigate this aspect of disability insurance coverage so your clients get the insurance they need.
What Are Occupation Classes?
Different jobs have different levels of risk. For example, the U.S. Bureau of Labor Statistics says that logging workers have the highest rate of fatal injuries among all civilian occupations, followed by fishing and hunting workers.
When a disability insurance application goes through the underwriting process, the insurance company needs to determine the applicant’s risk level. Things like age and medical history can impact this, but so can the person’s occupation.
Insurance companies assign various occupations to different classes. The classification system usually involves numbers and letters. The numbers typically go up to 5 or 6, and the most common letter is A. So, one worker might be classified as 2A based on their occupation, and another work might be classified as 4A.
Very different occupations can fall into the same broad class if the risk level is similar. For example, graphic designers and accountants might end up in the same group if their duties involve similar risks. However, some specialized occupations have different letters reserved just for them. For example, doctors may be classified as P.
Note that occupation class is NOT the same as the definition of disability, which is often listed as either own-occupation or any-occupation. The occupation class is used in underwriting to determine risk, but the definition of disability determines the criteria for a disability claim – whether the applicant can file a claim if they can no longer perform the duties of their own job (own-occupation), or if they can only file if they can’t perform any job they’re suited for (any-occupation).
What Disability Insurance Companies Do and Don’t Care About
With the exception of a few prestigious occupations that require years of specific training (physicians, attorneys, veterinarians, etc.), carriers almost don’t care at all what the potential insured’s job title is. They’re worried about risk level, and the job title doesn’t necessarily reveal much about that.
Many applications and quote requests come in for prospects that are listed as “business owners” or “consultants.” When this happens, carriers will want to do some more digging. They will want to know income history, day-to-day duties and the industry they are in.
Even occupation titles that have more clarity may require more detail than you would expect. Real estate agents, for example, can be a tricky one. While some carriers offer one class to all real estate agents, others have a wide range that is dependent on income history. When it comes to getting an accurate quote for your client, it’s best to get as much of this information upfront as possible.
Occupation Class Affects More Than Price
While it’s generally true that higher occupation classes are considered less risky and therefore more affordable, the advantages don’t end here.
Some occupation classes have limits on contract provisions like benefit period length, riders (such as future purchase options), and discounts available. The maximum monthly benefit may also be tied to the occupation class, with some classes having more limited monthly disability benefit amounts.
Keep this in mind when talking to clients about individual disability insurance to manage their expectations and avoid sticker shock. If a disability insurance policy is too expensive, shorter benefit periods for lower occupation classes are usually the first change we implement to make the plans more affordable.
Not All Classes Are Equal
Although disability insurance companies typically use similar systems for classifying occupations, there are differences. For example, some carriers have classes that go up to 6A, and some only have 4A or 5A as their top class.
It’s important not to put much weight into comparing occupation classes between the carriers. At the end of the day the class is not nearly as important as the contract strength and price. Pricing varies dramatically, and sometimes a 2A with one carrier is a better option than a 4A with another. Do your client a favor and focus on what’s important – protecting their income.
Example of Occupation Classes
Because different companies use slightly different systems, the codes used can get confusing. Don’t worry! You don’t have to figure out the occupation class for your client. You just need to provide enough information so the insurance company can determine the class.
However, you may want to have an idea of how these classes work. Here’s an example from a guide published by The Standard:
- Class 2A includes supervisors who don’t perform manual labor and some skilled clerical and technical workers.
- Class 3A includes most professionals and the technical and managerial occupations that don’t qualify for 4A.
- Class 4A includes some professionals and white-collar occupations, such as large animal veterinarians and school principals. Policyholders with this class may receive favored premium rates.
- Class 5A includes some professionals and white-collar occupations. Policyholders with this class may receive preferential rates.
- P classes are used for certain medical professionals. Class 3P, for example, is used for physicians who work in emergency rooms and perform interventional procedures.
- B classes are used for the most hazardous occupations that can be insured, such as carpenters and mechanics.
When you submit a disability insurance application, you may see a few differences. For example, many carriers now use a special S class for surgeons instead of lumping them into the P class. Additionally, many carriers have added a 6A class for attorneys, CPAs and executives, with 5A reserved for management-level workers.
Getting the Right Classification
Obtaining the right occupation classification for your client is important. If the occupation class is assigned incorrectly, your client might be charged more than they should be, and the policy terms may not be as beneficial. Even worse, the application could be denied. Here are some tips to help your client receive an accurate occupational class assignment:
- Be specific. When entering the occupation, focus on the industry and the duties, not just a generic job title like “manager.” Be detailed and provide any information that you think might help your client secure an accurate classification and a good rate. For example, if your client works in an industry that’s normally associated with a high risk of injuries, but your client works in a safe environment and has safe office duties, make sure this is clear.
- Understand how it works if there are two jobs. If an applicant has more than one occupation, the insurer will probably use the occupation with the highest risk level, so be prepared for this. For example, some doctors work in the emergency room for a portion of their time while the rest of their time is spent in a family practice or other medical setting.
- Appeal if needed. By providing correct and specific information, you can increase the odds of an accurate classification. However, mistakes happen. If you think the disability insurance company has assigned the wrong classification, you can appeal.
- Secure multiple quotes. Because of differences in occupation classes and other underwriting criteria, one insurance company might provide a much better rate and terms than another. At DIS, we like to show three to five different carrier options for clients if possible.
Learning the basics about things like disability insurance occupational classes can empower you to find the best disability income insurance coverage for your clients. Want to learn more about disability insurance? Get the Disability Insurance Crash Course.