Own Occupation vs Any Occupation Disability Definition
I spent over a decade as an insurance broker and employee benefits specialist meeting with thousands of employees and companies of all sizes. Over the years, one of the most popular policies that I sold was disability insurance. Unfortunately, disability coverage is easily misunderstood due to the complexity of the policy. This makes it harder for newer agents to learn all the aspects of the policies. At my brokerage, one of the issues that I emphasized not only in agent training but also in my own sales presentations was the subject of own occupation vs any occupation disability definitions.
Own Occupation vs Any Occupation Disability Definition
Ultimately an insurance policy is made up of the definitions, clauses, exclusions and benefits that an insurance carrier decides to build into the policy that eventually gets sold to policyholders. The better carriers are very specific about coverage and they focus on those specifics with the agents that sell their policies. One of the more important definitions in a disability policy is how the carrier defines the definition of work that you will return to after you have recovered from a disability. This is referred to as “own occupation vs any occupation disability definition”.
What does this mean? It’s basically the meaning of how the carrier classifies the work that you can return to.
- “Own Occupation” means you will continue to receive disability benefits that you are entitled to in your policy until you are able to return to the occupation that you previously worked or a similar position. So an attorney on disability would have to go back to work as an attorney, for example.
- “Any Occupation” means that your disability will be terminated when you are able to return to work as any occupation. So that attorney will lose his or her disability insurance benefits whenever they are cleared to return to work to any kind of position. Not a good situation if you are unable to work as an attorney because of an eye injury, but your disability insurance carrier discontinues your benefits because your doctor has cleared you to work answering telephones in a telemarketing office.
Any guess as to which policy costs less? Exactly. That would be the disability policy that includes the “any occupation” definition.
Less Than Ethical Agents
So why would I emphasize more expensive disability policies with more restrictive “own occupation” definitions? Well, because our policyholders trusted my agents and I to get them the proper coverage that they needed. The insurance industry is loaded with less than ethical agents that sell “any occupation” definition policies and never even tell their policyholders why the policy they are buying is so cheap. By the time the policyholder needs to use the disability coverage, they are surprised to learn that their benefits are minimal and nothing close to what they needed.
Unfortunately, when they call their agent to complain they are also surprised to learn that the agent that sold them the policy is usually no longer an agent. The insurance industry has ridiculously high turnover. It comes with the territory in a 100% commission industry. It’s not the fault of the agents or the carriers, it’s just a tough business. This is why it’s best to choose insurance agents that have been around for more than 2 to 3 years. Once they survive past 3 years, they usually start earning enough to stay in the industry long term.
Cost of Benefits Versus The Premium Cost
So why would an insurance carrier even offer any occupation coverage instead of own occupation? Well, it really comes down to cost of benefits versus the premium cost. This means that if an insurance carrier decides that they want to offer a lower cost disability policy, then they know they have to offer a policy with a more restrictive definition of what they consider to be an eligible disability. This lowers the number of eligible claims and allows them to reduce the premium cost of the policy. It’s relatively complicated to calculate but easy to understand.
Keep in mind that this is not considered shady or underhanded when an insurance company does this. There are actual uses for both types of disability policies. They design the policy a certain way and they include all of this information in the literature and policy documents that they file with the state. The insurance company designed this plan and offered this policy with a specific market in mind. There is nothing unethical about that.
So where do problems occur? It happens on the agent side when they only represent this one insurance company and don’t offer any other types of disability policies. Many times these agents with a limited selection to offer their clients will attempt to sell that one policy as the best available for any type of client.
If the agent is truly interested in representing the best interests of their clients, then they would add additional types of disability coverage to their available product offerings. If they don’t have that option available then they should at least explain the downsides of the type of policy they do sell. That’s basic sales ethics 101.
Restrictive vs Broad Definition
So when would a disability insurance policy with restrictive definitions like “Own Occupation” be considered a good thing? Actually, most of the time. As an insurance broker, I always preferred “Own Occupation” disability plans. This was due to the fact that even if you are just starting out in your chosen career, you still have all of your experience in that type of job. So if you are unable to do that job it would make more sense to receive disability insurance benefits versus being forced to do a lesser job just because of the broader disability definition of other plans. This is where the restrictive vs broad definitions comes into play. The more restrictive definition disability plans are slightly more expensive, but the benefit of “Own Occupation” definition far outweighs the increased cost.
Skilled Workers or Professionals
The own occupation disability plans are very popular with anybody that is considered “skilled” or “professional”. I’m talking about a career path that you learn a specific skill set which pays you a higher income than lesser trained workers. Doctors, Dentists and other medical professionals are a good example of the types of professions that should always buy own occupation disability insurance coverage.
When Should an Insurance Agent Offer Any Occupation Disability Plans?
Disability plans with a broader definition of disability would be considered “Any Occupation” disability plans. When should an insurance agent offer any occupation disability plans? Usually it would be limited to clients that were very focused on lower premium cost for a disability insurance plan that covered situations that are more catastrophic in nature. For example, a client asks for a short-term disability plan with a two-year benefit amount. This will provide them with an income in the event that they are permanently disabled and need a way to pay their bills during the lengthy two-year SSDI (social security disability insurance) application process. This type of disability coverage would allow an agent to offer higher benefits would lower cost.
So if the client were permanently disabled, this type of disability coverage would be a big help to them. Like I said, there are advantages to a broader definition policy as long as the buyer understands exactly what they are getting.
Specific Uses of Own Occupation Disability Insurance Plan
Here are specific uses of own occupation disability insurance plan to help you better understand how it works. Say, for example, you are a Dentist in your own practice. It’s advisable to purchase a Long Term Disability plan with higher monthly benefit amounts because of your increased overhead costs. You definitely want your eligible disability definition to be own occupation because this is what you are trained to do. Unfortunately your higher income requirements means your disability coverage is going to be a higher premium cost.
A good agent will then offer you a few options to reduce your premium cost. An easy way to quickly reduce the cost is to extend your elimination or waiting period to six months or longer. This means that your long term disability payments won’t start until you’ve been disabled for at least six months. Some agents will even offer one or two year elimination periods on long term disability coverage for clients that have enough savings to weather the waiting period after a disability.
So what do you do if you don’t have a lot of savings to cover the waiting period? Well, you buy a short term disability policy of course.
Short Term and Long Term Disability Coverage Work Together
So continuing on this example. You leave work at your dental practice and are involved in a bad car accident. The accident has caused severe nerve damage in your hands and some back problems that prevent you from standing longer than 10 minutes at a time. Your own occupation Long Term Disability Insurance policy has a 6 month Elimination (Waiting Period) and pays you a Disability Benefit Amount of $10,000 per month until you are age 65. You had a smart, ethical insurance agent who explained how short term and long term disability coverage work together. So you purchased a short term disability plan to cover the six month waiting period for the long term policy to start.
Less Pay Than the Benefits Available from Your Disability Coverage
When you file your claim with your disability insurance carrier, they will verify the claim, review everything with your doctor and since you are unable to work, begin payments on your claim. That specific nature of the own occupation plan definition protected you from having to do lesser skilled work for less pay than the benefits available from your disability coverage.
In this same situation, had you chosen an any occupation to save money, then the carrier would also want to know what other work you are able to perform such as Light Duty or Sedentary work. So they might deny your disability claim if doctors believe you can do sedentary work such as answering a phone. Clearly this is not a situation that the dentist wants to be in and is another reason to buy own occupation disability coverage.
Workers Compensation Insurance
So who on earth would ever get a disability policy that had any occupation definitions? Well, one of the best known examples of a type of policy that utilizes less restrictive any occupation disability definitions is workers compensation insurance.
Within the Workers Comp Industry there exists an entire subset of profitable businesses that focus exclusively on providing “occupational rehab” services to workers comp insurance carriers. These businesses set appointments for interviews for claimants regardless of their skill set or education. So the dentist we mentioned above might be sent to do telemarketing phone sales if he was restricted to performing only sedentary work. Clearly a disability definition of own occupation is better for the disabled claimant.
Hopefully this article has helped you to better understand the Own Occupation vs Any Occupation Disability Definition and how it can dramatically alter your benefits and premium cost.
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