Own-Occupation Disability Insurance
Disability insurance provides paycheck protection. If you can’t work due to a disability, you can claim disability benefits, per the terms of your policy. It sounds simple, but as the saying goes, the devil is in the details. Whether you actually qualify for disability benefits will depend on the nature of your disability as well as the definition of disability used in your policy. An own-occupation disability insurance policy provides protection that an any-occupation disability insurance policy simply doesn’t offer.
Defining Disability
- An individual disability insurance policy pays monthly benefits if the policyholder is considered disabled under the policy, so the definition of disability is critical.
- According to Merriam-Webster, a disability is “a physical, mental, cognitive, or developmental condition that impairs, interferes with, or limits a person’s ability to engage in certain tasks or actions or participate in typical daily activities and interactions.”
- That’s a good definition, but it’s not quite the one that disability insurance policies use. For these policies, what really matters is whether or not the disability interferes with your ability to work, and that’s what the definitions focus on.
However, not all disability insurance policies define disability in the same way. Some use an any-occupation definition, while others use an own-occupation definition.
Material and Substantial Duties
Your disability income insurance policy might refer to “material and substantial duties.” For example, the policy’s definition of disability might say that you will be considered disabled if you are unable to perform the material and substantial duties of your occupation because of a disability.
These are the tasks that are central to your job. If you can’t do these things, you can’t do your job. For example, if you’re a nurse, transferring patients might be a critical part of your job. If a back injury prevents you from moving patients, you might not be able to perform your job. However, if you’re an accountant, transferring patients is not going to be part of your job. A back injury that makes it impossible for you to lift or move heavy objects might not interfere with your occupation.
Any-Occupation Disability Insurance
- An any-occupation disability insurance policy defines disability as a condition that prevents you from performing any type of work. If you could be gainfully employed in another industry, you probably won’t qualify for disability benefits.
- Let’s say you work as an office manager. You’re diagnosed with cancer, and between the illness itself and the treatments, you don’t have the energy to work at all, and your doctor says you need to rest anyway. You can’t do your job. Switching to a different line of work isn’t an option, either. You file a claim, and after your elimination period has ended, you start receiving monthly disability benefits. In this type of situation, an any-occupation disability policy might meet your needs. However, in other situations, you might not have the coverage you need unless your disability policy uses an own-occupation definition.
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.
Types of Own-Occupation Coverage
- It’s common to talk about any-occupation versus own-occupation insurance policies, but the definitions of disability are actually more complicated than this. There are different types of own-occupation coverage.
- For example, some own-occupation coverage is specialty-specific. This can be an important distinction for physicians with certain specialties. For example, imagine that you’re an ophthalmologist, and you perform intricate surgery on eyes. You experience a hand injury that renders you unable to perform surgery, but you can still work as a family doctor or in the emergency room. Can you perform the duties of your job? If you define your job as an ophthalmologist, no, you can’t, but if you define your job as a physician, maybe you can. A specialty-specific definition of disability provides protection in this type of situation.
- Another element to consider is whether the policy provides true own-occupation coverage. Like modified own-occupation coverage, true own-occupation coverage provides benefits if you can’t perform your regular job. However, with modified own-occupation policies, if you decide to work in a lower-paying field, you could lose your benefits. With true own-occupation disability insurance policies, you’ll still qualify for benefits even if you’re earning income in a different, lower-paying occupation.
Who Needs Own-Occupation Disability Insurance?
- Own-occupation disability insurance is often associated with doctors, and for good reason. Doctors have invested time and money into their career, and if an injury or illness forced them into a different field, they would probably take a massive pay cut. Therefore, specialty-specific true own-occupation disability insurance is a good option for doctors.
- However, other workers may also benefit from own-occupation coverage. If you have a physically demanding job, or one that requires excellent eyesight, hearing, or dexterity or anything else that a disability could impact, you might want to consider own-occupation coverage.
- If your job does not have any special physical or mental requirements, you might not need own-occupation coverage. Any-occupation disability insurance is typically more affordable, so if it provides adequate coverage in your situation, choosing it can save you some money.
Claiming Disability Benefits
- If you experience an illness or injury and cannot work as a result, you should contact your disability insurance company to make a claim. Your insurance company may need additional information about your disability and why it means you can’t work.
- Once your claim is approved, you probably won’t start receiving monthly disability insurance benefits immediately. Disability insurance policies typically include an elimination period, also called the waiting period. This is how long you have to wait between experiencing a disability and receiving benefits. Elimination periods are often 90 days, but they can be shorter or longer. Make sure you have emergency savings to cover your elimination period.
- Once you receive benefits, you can use them however you decide. The benefits replace a portion of your regular income, and you may need this money to cover bills, groceries and other expenses. You can also use disability insurance benefits to cover out-of-pocket medical costs or time with your family.
Do You Need Own-Occupation Disability Insurance?
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