If you’re comparing disability insurance policies, you’ll noticed they have different definitions of disability. This is a big deal. If you ever have to file a disability claim, the definition of disability can determine whether you qualify for monthly disability benefits. But what is own-occupation disability insurance?
Own-Occupation and Any-Occupation Disability Insurance
An any-occupation disability insurance policy defines disability as your ability to perform any job, whereas an own-occupation disability insurance policy defines disability as your ability to perform your job – the one you were doing before you became disabled.
These terms might seem trivial; in fact, they’re critical.
Identifying the Material and Substantial Duties of Your Job
An own-occupation definition of disability might state a person is disabled if he or she cannot perform the material and substantial duties of his or her job due to a disability.
Different jobs have different physical and mental requirements, meaning a disability that might exclude you from one job may not be a problem for another job. It all depends on the material and substantial duties of the job – i.e., the main tasks you need to perform in the course of your work.
For example, some jobs require heavy lifting, some mental clarity and concentration. Others require a steady hand or precise coordination. Due to these differences, the same disability can have a different impact on people in different occupations.
Defining Disability Based on Your Ability to Work
Imagine Percy is an accountant. While on a skiing vacation, he’s severely and permanently injured. He’ll have to use a wheelchair for the rest of his life. Based on this, you might say he is disabled. However, he can still work as an accountant. In fact, after a few months off, he’s eager to return to his normal job. Therefore, does he qualify for long-term disability insurance benefits? No.
Disability insurance doesn’t pay out just because you’re disabled – it‘s designed to replace a portion of your income if you can no longer work due to a disability. In this example, Percy can still work. Since his long-term income has not been impacted, he doesn’t need long-term disability insurance. A short-term disability insurance policy might cover the months immediately following the injury – when he was in the hospital and couldn’t work – but he would not be able to make a long-term claim on an individual disability insurance policy.
Disability insurance policies define disability based on your ability to work. However, as we’ve seen, you might be able to work in one job but not in another. This issue is at the heart of the any-occupation versus own-occupation divide.
What If You Can’t Work in Your Job But Could Do a Different Job?
Let’s look at another hypothetical example, this one involving a woman named Chloe. She’s an entertainer – specifically, a magician’s assistant. Her job involves contortion, meaning she has to be fast and agile. Then she injures her back. She can still walk and sit and, unlike Percy, she doesn’t need a wheelchair, but she’s in a lot of pain and can’t bend or move as quickly as is necessary to do her job. She could work in a different job – for example, as a secretary – but that’s not the job she’s trained for and it won’t pay as well.
An any-occupation policy might not provide benefits in this situation because Chloe can still be gainfully employed in many occupations.
Likewise, Chloe almost certainly wouldn’t qualify for Social Security Disability Benefits. The Social Security Administration has a strict definition of disability: to qualify for benefits, a person must be unable to engage in any substantial gainful activity due to a physical or mental impairment. Furthermore, the disability has to be expected to persist for at least a year or result in death.
However, since Chloe can no longer perform the material and substantial duties of her regular occupation, an own-occupation disability may provide benefits – as long as Chloe meets the other criteria.
What If Your Specialty Has Extra Requirements?
Some specialties have additional requirements, especially in the medical field. For example, a family doctor and a neurosurgeon are both physicians, but their daily tasks and salaries are very different, with neurosurgeons earning much more on average. According to Doximity, neurosurgeons earn an average of $773,201 per year, whereas doctors who specialize in family medicine only earn $273,865 per year.
Imagine a neurosurgeon named Beth develops a medical condition that causes her hands to shake. She can’t perform surgery anymore, but she could perform other types of medicine (for a lot less money). If she has a specialty-specific own-occupation policy, she may still qualify for benefits. However, with a more restrictive definition of disability, she might not qualify for benefits.
What If You Want to Return to Work – Even If It Means a Pay Cut?
Many people enjoy working. They may even consider their profession to be a calling, not just a paycheck. If they’re forced into an early retirement, they might become bored and even depressed.
Let’s go back to the last example. As Beth has specialty-specific own-occupation disability insurance, she files a claim and starts receiving monthly benefits. Financially, she’s fine, but emotionally, she’s not. She’s bored and feels useless because she’s not helping people like she used to. She wants to return to medicine, even though she’ll have to switch to family medicine and take a massive pay cut.
With a true own-occupation policy, she can still receive benefits, even though she’s earning money as a family doctor. If she had a modified own-occupation policy, she would have to sacrifice her benefits if she decided to work as a family doctor.
Is Own-Occupation Disability Insurance Worth the Cost?
Own-occupation disability insurance might sound better than any-occupation disability insurance. Certainly, the coverage is better. However, there’s a reason any-occupation disability insurance still exists and a reason people buy it: any-occupation disability insurance is cheaper than own-occupation disability insurance.
This makes sense: you get what you pay for. For some workers, own-occupation coverage is worth the cost. For example, experts generally recommend that doctors secure specialty-specific own-occupation disability insurance. Likewise, it may be wise for dentists to invest in own-occupation disability insurance.
However, for workers with jobs that aren’t as specialized, any-occupation disability income insurance might be good enough. Furthermore, insurance agents who push a pricy own-occupation policy when it’s unnecessary might receive price objections. If workers reject coverage because of the cost, they won’t have any protection during a disability – and that’s the last thing you want to happen. An any-occupation policy that meets the worker’s budget is better than no coverage at all.
Compare Disability Insurance Policies
A disability can turn a person’s finances upside down. Disability insurance provides important paycheck protection – and own-occupation disability insurance provides an especially high level of protection. When you’re comparing disability insurance policies, the definition of disability matters. Learn more about own-occupation coverage.