The own-occupation provision of disability insurance is often considered the gold standard. So is a Mercedes Benz, but more of us buy a Chevy or Ford. All automobiles fulfill the essential need – transportation – but a Chevy or Ford can do it without the high sticker price. Likewise, all disability insurance policies provide paycheck protection, but an own-occupation policy adds both bells and whistles and a higher price tag.
For some individuals, an own-occupation disability insurance policy is absolutely the best choice. For others, it might not be worth the cost. Before buying or recommending a policy, it’s important to know the pros and cons.
What Is Own-Occupation?
Before you can decide whether it’s worth the extra cost, you need to understand the definition of an own-occupation disability policy.
An own-occupation disability insurance policy, or own-occ policy, is one that will pay out if the policyholder is unable to continue working in the field that he or she has been trained for due to an injury or illness.
What Is the Alternative to Own-Occupation?
The main alternative to own-occupation disability insurance is any-occupation disability insurance. While an own-occupation policy will pay benefits if the policyholder is unable to work in their chosen field, an any occupation policy will only payout if the policyholder is unable to work in any occupation that is suitable for them.
Own-Occupation Disability Insurance Examples
The differences between own-occupation and any-occupation disability insurance may seem trivial. In fact, for many policyholders, the differences may be unimportant. However, in certain situations, the difference becomes tremendously important.
For example, let’s say the disability insurance policyholder is a pianist. She has trained for years to become a world-class pianist. If a hand injury prevents her from playing the piano, she will be able to file a claim with her own-occupation disability insurance policy. This is true even if she can find work and become gainfully employed in another field.
The same situation could apply to a surgeon. A surgeon who injures her hand might not be able to perform surgery anymore, but she could probably still work in another medical specialty. An own-occupation disability insurance policy would provide coverage, but an any-occupation policy would not.
Own-Occupation Offers the Broadest Protection
Own-occupation coverage offers the broadest protection. That sounds good, but it can actually be both an advantage and a disadvantage depending on the situation.
Pro: Clients with specialized skills, especially those with a specific physical requirement, often need the broad coverage that only own-occ policies offer. In this case, having own-occ coverage is definitely an advantage.
Con: The majority of occupations do not have such specialized requirements. Clients whose jobs rely on mental faculties have less need for own-occ coverage and may be overpaying for protection if they choose the broad coverage of an own-occ policy.
Own-Occ Comes with a Higher Price Tag
Price objections are common when it comes to disability insurance. If price is the primary concern, consider the following pros and cons.
Pro: Clients who need the level of protection own-occ provides often have a higher risk of not returning to the same level of employment after some disabilities. The nature of their work and salary may make them more likely to find the added premium acceptable and affordable. For example, a neurosurgeon may realize that a disability could force him out of his specialty, and he may be willing to pay extra for own-occ coverage.
Con: Carriers price products based on risk. The own-occ benefit may come with a higher risk of claim, a longer claim period, and a high benefit payout. All those factors add up to a more expensive premium. For most clients, any-occ will provide the necessary safeguard against an income interruption due to a disability with a much more affordable policy.
Own-Occ May Require More Explanation
Educating clients on disability insurance can be a challenge. Explaining the difference between own-occ and any-occ policies may take some extra time, but it may be worthwhile. Consider these pros and cons.
Pro: Many clients won’t realize how much the policy definition can impact the premium charged and the ultimate benefit. Helping your clients understand the nuances of the definition makes them a partner in the decision-making process and establishes you as the expert advisor.
Con: Proposing own-occ with every case certainly gives the maximum coverage to every client but may also limit your ability to earn client trust by making decisions through education and collaboration. You may also lose more sales based on budget objections.
Own-Occupation Policies Can Vary
Although we’ve covered how own-occupation policies work in general, there are some differences depending on the details of the individual policy and which insurance company is offering it. Make sure you read the fine print to understand key issues and compare options from different insurance carriers.
- How is disability defined? Does the policyholder need to be considered totally disabled? What counts as a disability? For example, the policy may say that benefits will be available if the policyholder is unable to perform the material and substantial duties of their occupation. If the policyholder ever wants to file a claim, knowing what does and does not count as a disability under the terms of the policy will be essential, so pay attention to the definition of disability.
- Does the policyholder need to be working at the time of the disability in order to qualify for benefits? This is often the case with own-occupation policies. However, a modified own-occupation policy may work differently.
- What is the maximum monthly benefit? How long is the benefit period? How long is the waiting period, also called the elimination period? Before a client can decide whether a policy meets their needs, they need to know exactly how much it offers in disability income benefits.
What Is True Own Occ?
So far, we’ve talked about the difference between own-occupation disability insurance and any-occupation disability insurance, but there’s actually more than one type of own-occupation coverage.
- True own-occupation disability insurance definition. True own-occupation disability insurance will continue to pay disability benefits even if the policyholder decides to work in another lower-paying profession.
- Modified own-occupation disability insurance definition. Modified own-occupation disability insurance stops paying disability benefits if the policyholder chooses to accept work in a lower-paying occupation.
- Transitional own-occupation disability insurance definition. Transitional own-occupation disability insurance can continue paying disability benefits if the policyholder chooses to accept work in a lower-paying occupation, but the benefits may be reduced based on the difference in pay.
For example, imagine a surgeon injures her hand and cannot perform surgery. Surgery is considered part of her material and substantial duties, so she qualifies for disability benefits. However, she still wants to work, so she accepts a job in another field that pays less. With a policy that uses a true own-occupation definition, she can still qualify for benefits. However, with a policy that uses a modified own-occupation definition, she would lose benefits. A transition own-occupation policy might pay a reduced monthly benefit.
For highly specialized professions, it’s also important to consider what counts as the same occupation under the policy. For example, someone who switches from surgery to family practice is still a physician working in the medical field, but such a switch would likely involve a major pay cut. A true-own occupation disability insurance policy with specialty-specific coverage provides the highest level of coverage.
Occupations That Probably Don’t Need Own Occ
For people in many occupations, the extra cost of own-occupation insurance can outweigh the potential benefits. In fact, the high cost of own-occupation disability insurance could cause some people to reject coverage completely. Having some disability coverage is better than having no disability coverage, so any-occupation is a good fit in these cases.
For example, people whose work depends primarily on mental skills may not need own occ coverage. These occupations could include programmers, graphic artists and accountants. Additionally, professions that don’t require highly specialized skills may not need own-occ disability insurance coverage. If the policyholder could easily switch to another occupation without taking a major pay cut, any-occupation disability insurance may be suitable.
Occupations That Probably Should Have Own Occ
If you’ve gotten this far, you’ve probably noticed that doctors keep coming up. This is because doctors, and surgeons in particular, are considered prime candidates for own-occupation coverage. They have highly specialized skills, and a disability that would not preclude them from all types of work could force them to stop practicing their specialty. Additionally, they have high incomes, meaning that they can afford the extra cost of an own-occupation policy and they have a strong incentive to protect their income.
Other strong candidates for own-occupation disability insurance include dentists and pilots. Some individuals outside of these common examples may also benefit from the broad coverage that own-occ insurance provides, particularly in highly specialized, white-collar occupations.
When Should You Offer Own-Occupation Coverage?
Own-occupation policies tend to be appropriate for doctors and other highly specialized professionals who would take a serious pay cut if they had to switch careers due to a disability.
Consider the following questions:
- Could the client maintain the same income level in another line of work? If so, then switching to another occupation might not represent a hardship, and any-occupation disability insurance might provide sufficient coverage at a lower cost.
- Does the client’s profession have special physical requirements? For example, a surgeon may be unable to work after a hand injury or an illness that impacts coordination. If the substantial and material duties of the job are highly specialized, own-occupation disability insurance might be worth the additional cost.
- Can the client afford the extra cost of an own-occupation policy? If own-occupation disability insurance is too expensive, any-occupation insurance provides a more affordable alternative. This allows people who can’t afford own-occ coverage to still have some disability income protection.
The key takeaway here should be that disability insurance is not a one-size-fits-all product. You shouldn’t automatically offer own-occupation to every single client as a matter of routine. You shouldn’t avoid offering own-occupation to anyone, either. Instead, examine the needs of each client on a case-by-case basis and determine whether an own-occupation policy is worth the extra cost. Sometimes, you may want to offer a true own-occupation or modified own-occupation policy. Other times, you may recommend an any-occupation policy.
Also explain the difference to your clients. This will allow them to make informed decisions. It will also help them understand the value of an own-occupation policy if that’s the best choice for them, thereby reducing the chance of price objections.