Own-Occupation vs. Any-Occupation: Know Your Disability Coverage
Most people would be genuinely surprised to learn that their chances of becoming disabled are about three to five times greater than their chances of dying prior to age 65, yet, U.S. workers are more likely to purchase life insurance than disability insurance.
We all insure our cars, our home, our health, and our lives, but too many of us overlook insuring our ability to earn an income.
Certainly, we can understand the financial devastation that would likely occur if we were to become disabled and could not work but, surprisingly, most working adults who carry disability insurance do so because they can get it either very cheap or even free through their employer.
In this article, we’ll discuss disability insurance and why every working adult should have it. And more specifically, we’ll be talking about own-occupation disability insurance because this type of insurance delivers the best value for the money.
Certainly, not everyone becomes totally disabled. In fact, because of either illness or injury, most people who become disabled are actually partially disabled rather than totally disabled. Here are the different types of disability explained:
Total Disability (own-occupation definition)
You are considered totally disabled when you cannot work in your occupation because of an illness or injury, and your disability can be temporary or permanent.
If you have a disability insurance policy, you can typically collect a monthly benefit that will replace a large portion of your income that will help you contend with the financial storm you’ll be caught up in until you can get back to work.
The amount you can collect and how long you can collect it will depend on the terms of your insurance policy and whether you are insured for your own occupation or any occupation.
You are considered partially disabled when you are unable to complete all of your regular job responsibilities because of an illness or injury. As a result, your income is reduced substantially while you are getting treatment from a healthcare provider.
Typically you will qualify for partial disability benefits whether your policy is an own-occupation policy or any-occupation policy.
Partial disability benefits are typically calculated based on your percentage of lost income versus your normal income.
Presumptive disability exists when your illness or injury is so severe that your disability insurance company believes your disability will be permanent.
Since there is no hope of recovering from your disability, the insurance company will pay your full benefit whether or your policy is based on your own-occupation or any occupation.
What is Own-Occupation Disability Insurance?
Own–Occupation disability insurance pays a monthly benefit when the insured is unable to work in the occupation he or she was regularly engaged in when the disability took place.
Some insurers define it more widely, noting it as the occupation that was engaged in for one year prior to becoming disabled. Own-occupation disability insurance covers individuals who cannot perform the specific duties that they have been trained to perform for their occupation.
True Own-Occupation Disability Insurance
A True Own-Occupation policy pays a benefit when you become disabled, and you can claim benefits even if you chose to work in another occupation.
The insurance company will describe your occupation in this type of policy as your own occupation, regular occupation, or professional specialty.
Moreover, if you are unemployed when your disability happens, the insurance company will consider your occupation to be what you did at your last employer.
Modified Own-Occupation Disability Insurance
Under this definition, an insured will receives monthly benefits when they cannot work in their own occupation and they are totally disabled. Still, the benefits will cease if that person wants to work in a different profession.
The choices a totally disabled person would have with modified own-occupation coverage would be to either live off their disability check and remain totally disabled or return to work in a different occupation.
Transitional Own-Occupation Disability Insurance
With transitional own-occupation insurance, your disability policy will pay monthly benefits if you can’t work in your own occupation and start receiving an income in a new occupation. However, your new income (including benefits) cannot exceed the total original income.
If you make more money in your new occupation than you did in your previous occupation, your benefits would be offset until your total income is equal to the benefits plus your new income.
Adjustable Hybrid Policies
Many disability insurance companies offer disability policies that provide some type of own-occupation coverage for a pre-determined time, like two years. When the period expires, the policy will adjust to an any-occupation policy, which could stop additional benefits from being paid to the policyholder.
Suppose you have purchased this type of policy and become totally disabled. In that case, you can work at a different job and still collect benefits as with a true own-occupation policy until the initial period is exhausted. However, if you can work at any other occupation, then benefits will no longer be payable.
Own Occupation vs. Any Occupation Disability Insurance
When considering various options with disability insurance, two terms you may come across are “own-occupation” coverage and “any occupation” coverage.
It’s crucial to understand the difference between the two: each type requires different criteria that must be met in order to receive benefits, which can make a world of difference to you and your family should you become disabled.
Disability insurance can be uniquely classified according to the form of benefit that is paid out and the specific definition of disability.
The any-occupation definition is the strictest form of disability insurance policy and will only payout if the insured becomes totally disabled and cannot work at any type of job.
The any-occupation definition can be a significant disadvantage for high-income professionals who, because of injury or illness, are unable to perform their duties in their chosen professions.
There is, however, another definition of disability insurance that will pay out benefits based on the insured’s ability to work in his or her chosen profession.For example, a surgeon who has injured both hands after an accident cannot continue to perform surgeries but could teach on the subject. The act of performing surgery would be considered “own occupation,” but the act of teaching surgical techniques would be regarded as “any occupation.”
Indeed, teaching surgical techniques would pay the surgeon substantially less than the own-occupation benefit, so the surgeon would continue to receive full disability benefits as well.
Why Own-Occupation Insurance is Preferred
With own-occupation coverage, insured people are not penalized for going back to work in a different occupation while receiving benefits. Likewise, they don’t risk having their insurance company deciding whether or not they are able to work in another profession.
If they become sick or injured while they are employed, they are considered totally disabled, even if they are able to perform the duties of another occupation.
On the other hand, if an any-occupation policy was purchased, when an insured can work at any occupation, the monthly disability benefits would not be available to the insured.
How to Save on Own-Occupation Disability Insurance
Opt for a Longer Elimination Period
Every disability policy includes a waiting period between the time of your disability claim and the dispersal of your benefits. This is known as the ‘elimination period’ and it typically lasts anywhere from 30 days to one year. The shorter the elimination period, the more expensive your plan is likely to be, which is why most people tend to go for a 90-day elimination period. But if you really want to save, you can look into extending that to 180 or 365 days.
However, it’s important to remember that if you do opt for a much longer waiting period, you will have to provide for yourself during this time as you won’t have any benefits coming in. Therefore, this option is best reserved for those with a good amount of money in savings.
Reduce Your Benefit Period
Your benefit period is the length of time that your policy will continue issuing benefits after your disability. Because you never know how long a disability or illness can last, a lot of people opt to extend their benefit period all the way to retirement age (65-70 years old depending on the insurance provider). This is nice because it keeps you protected in the event of life-long debilitation. But it’s also the most expensive option.
However, if you’re looking for ways to significantly reduce your monthly premium payments, you might consider shortening your benefit period. Bringing your benefit period down to 10, 5, or even 2 years can save you up to 30 percent on your plan. The drawback here is you aren’t protected from the worst case scenario. So if you want that peace of mind throughout your entire career, you might just want to stick to that retirement age benefit period.
Eliminate Unneeded Riders
Every insurance provider offers riders that you can add to your policy to make it more robust. But you can save a considerable amount on insurance if you opt for a strong base policy with a minimal amount of extra riders.
A good example of a rider you might want to avoid is the ‘return of premium.’ This is basically an agreement between you and your insurer that says if you don’t file a disability claim within a certain period of time, usually 5-10 years, you are entitled to a refund of a certain portion of your premiums. This rider can actually double the cost of your policy, making it not all that worth it in most cases. But that doesn’t mean all riders are bad. Be sure to do your research and go over your options when it comes to riders. You don’t want to go too bare-bones with your policy and end up under-insured.
Reduce Your Monthly Benefit
Although disability insurance is designed to replace your income in the event of injury, it won’t replace all of it. The average plan aims to cover you for up to 50-70 percent of your salary. However, if you think you can make do with less (maybe you have some extra help, or have ways to cut down on expenses), opting for a lower monthly benefit can greatly reduce your premiums. It might help to go over your expenses before buying your policy to see where you might be able to cut down on waste and excessive spending.
Regardless of how you choose to go about reducing your insurance costs, the most important thing you can do is research. Talk to your insurance provider, shop around and be as informed as possible. Insurance contracts can be complex, so the more you know going into the process, the better off you—and your wallet—will be.
How to File an Own Occupation Disability Insurance Claim
Carefully Review the Original Policy
Before filing a claim, it’s important to review the terms and conditions of the original insurance policy. The policyholder should make sure that their injury or illness meets the criteria for receiving benefits. All of the policyholder’s answers on their original application should correspond with their medical history. If there are any inconsistencies between the insurance application and the policyholder’s medical history, the insurance company will want to know the reason. The policyholder should be prepared to clear up any inconsistencies with their insurance provider.
Contact the Insurance Company Right Away
The policyholder needs to inform their insurance provider of their injury or illness as soon as possible, even if the policyholder won’t receive their benefits for several months. The insurance company will want to know right away if one of their policyholders is disabled and intends to file a claim.
Keep Track of Medical Paperwork
It’s the policyholder’s responsibility to keep track of all their medical paperwork when filing a disability insurance claim. The policyholder will need to use their medical history to prove that they are in fact disabled and that they can no longer work in the same capacity.
Document All Interactions with the Insurance Company
Just as policyholders need to stay on top of their medical paperwork, they also need to maintain a record of all their correspondence with the insurance company. The policyholder needs to document interactions between themselves and the insurance company including any documents that might have been sent, what was said, etc. The policyholder should make copies of their disability insurance claim when sending it to their insurer. Any piece of correspondence can be instrumental in helping the policyholder receive their benefits.
Consult a Doctor on a Timeline for Going Back to Work
For those individuals who will be able to return to work at a later date, the insurance company will want consistent updates in terms of when they plan on returning to work. In addition, the policyholder needs to see their physician on a regular basis and report back to the insurance company for the length that they are receiving benefits. Just like before, it’s important for the policyholder to keep track of all their medical appointments as well as the status of their disability.
Get an Instant Own-Occupation Disability Insurance Quote
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We encourage all disability insurance shoppers to contact LifeInsure.com for expert advice from an experienced insurance professional at 866-868-0099 during normal business hours or click the Disability Quote button on the right.
What is an adjustable hybrid policy?
An adjustable hybrid policy allows the policyholder to be covered under the own-occupation for a preselected period of time, and then the coverage will revert to any occupation coverage.
What is classed as a total and permanent disability?
Total and permanent disability (TPD) is a phrase coined by the insurance industry. Generally speaking, it signifies that, because of an illness or injury, a person is cannot work in their own or any occupation for which they are have been educated and trained to do.
How much disability coverage do I need?
Applicants should purchase enough coverage so that the monthly benefit is sufficient to cover living expenses until the insured is able to return to work.
Are there any exclusions for own occupation disability insurance?
Although exclusions will vary by the insurance company selected, most carriers will always exclude pre-existing medical conditions and injuries that occurred during high-risk activities such as skydiving, mountain climbing, or race car driving.
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