Qualifying For Disability Insurance

If you’re shopping for your own disability coverage (rather than receiving disability insurance as an employer benefit), you’ll encounter a myriad of policy differences. You need to understand one of the most critical elements in any disability insurance policy: the definition of what a “disability” is.

The most desirable definition: Own-occupation Disability
If a policy defines disability as “own-occupation,” this usually means that you’re considered disabled if your condition prevents you from performing the “material and substantial duties” of your own occupation.  So if you are working in a job and become unable to do that job, a policy using this definition would qualify you for benefits.

This definition is important because you could be disabled in a way that prevents you from doing your current work but that leaves you able to do some other job.  A classic example is that of a surgeon who has an injury that causes his hands to be unsteady.  His ability to do surgery would be ended by this condition, but perhaps he could still teach in a medical school (though his income would probably be diminished).  Under this definition of disability, the fact that he could or did teach after the injury would not prevent him from collecting disability benefits after the waiting period and other policy provisions were met.  There is a catch, however.

Some insurers have begun using the term “own-occupation” in their policies in a rather misleading manner.  If you read their policies closely, you’ll find language that says you can collect full benefits only as long as you do not become employed in some other occupation.  This is different from the way the term used to be applied.  Using the previous example again, with such a policy the surgeon’s disability benefits could be reduced or even ended if he begins to teach.  Since the terminology is not strictly regulated some companies have shifted their definition of “own-occupation” to keep the cost of coverage down.  If you’re examining a policy that refers to “own-occupation” disability, you still need to read the fine print to be sure you understand what it will cover.

Any-occupation Disability
Generally, this definition means that you are eligible for disability benefits if you are unable to do work in any occupation for which you “are reasonably suited” by virtue of your age, training, experience, etc.

This definition is less desirable from the insured person’s point of view.  Using the surgeon example again, an any-occupation policy probably would pay nothing if he were able to teach medicine and it could be shown that he was reasonably suited to such work.

Blended definitions
Sometimes a disability policy will provide that benefits are paid under an “own-occupation” definition for a specified period of time, like three years.  After that point, if the insured has not recovered, benefits would only be paid under an “any-occupation” definition.  Depending on the specific situation, this might mean that benefits would end after the specified period.

Usually, if the only policy difference is the definition of disability, “own-occupation”coverage will be more expensive than “any-occupation” coverage.

About the author

Thomas Fisher, CFP®

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