Own Occupation Disability Insurance

Some true own occupation definitions in disability income protection insurance policies get even more specific. For example, if you have limited your occupation to the performance of the material and substantial duties of a single medical specialty or to a single dental specialty, the disability insurance company will deem that specialty to be your occupation.

Why should I care about the word "specialty" being included in my policy?

The more narrowly tailored your policy's definition of own occupation, the better it is for you. Not all occupations require such narrowly tailored definitions, but take a surgeon for example. A surgeon's specialty is the specific surgery he or she conducts. So, if you as a surgeon are disabled and can no longer perform your specialty, say brain surgery, you can still return to work, earning income in a similar job, and still receive your disability income benefit since you can no longer perform your own occupation specialty.

The numbers would look like this. You earned $150,000 a year as a surgeon. Now some injury or sickness prevents you from being able to be a surgeon. But if you return to, say your Alma mater as a professor, (or any other occupation), and earn a salary of perhaps $120,000 a year, you also will receive your disability income benefit in addition under a true own occupation definition of total disability. So now you are making $270,000 a year until your benefit period ends or your disability ends.

Another type of disability insurance worth mentioning for business owners, entrepreneurs, etc. is business overhead expense (BOE) insurance. BOE insurance provides business expense relief if you or a key person becomes disabled.

Bottom line: with a disability insurance own occupation definition, you can receive your monthly cash benefit even if your are gainfully employed, with no limit on how much you can earn. Contrast this with transitional own occupation.

Total disability or totally disabled under a transitional own occupation definition means that, solely due to injury or illness, you are not able to perform the material and substantial duties of your regular occupation. Under transitional own occupation, you can still receive benefits if you are totally disabled in your own occupation but are gainfully employed in another. And you can still receive your monthly indemnity benefit as long as your monthly earnings do not exceed the earnings from your former occupation.

Total disability or totally disabled under a modified own occupation definition means that, solely due to injury or illness, you are not able to perform the material and substantial duties of your regular occupation and you are not gainfully employed. The point is, if you are gainfully employed, under the modified own occupation definition, you will not be considered totally disabled. Most modified own occupation definitions convert to an any occupation definition after 24 months.

An any occupation definition of total disability means that, due to injury or sickness you are unable to perform the material and substantial duties of any occupation for which you are reasonably suited because of education, training or experience; and you receive regular medical care. This is a tough definition to meet, and typically under any occupation definition of total disability, the only way to receive you income benefit is to be unable to work in any occupation.

Total Disability or Totally Disabled means that, solely due to injury or sickness, you are not able to perform the material and substantial duties of your occupation.

Under a true own occupation definition, you will be totally disabled even if you are gainfully employed in another occupation so long as, solely due to sickness or injury, you are not able to work in your regular occupation.

Residual Disability or Residually Disabled means that you are gainfully employed and are not totally disabled by definition under the policy but, solely because of sickness or injury, your loss of income is a specific percentage lower than your prior income. The percentage varies by disability insurance company, typically ranging from 15% to 25%. 

Under a disability insurance policy, if you are residually disabled, the insurer pays a monthly income benefit at the end of each month while you are residually disabled. Initially, the insurer may pay a loss of income indemnity, which is basically a cash payment to you for your full income benefit. If you continue to be residually disabled in the same claim after the loss of income indemnity has been paid for 12 months, the insurer pays a residual cash indemnity, which is determined by a formula using your monthly loss of income divided by your prior income times your monthly indemnity percentage.

So, if your loss of income for a month is 50% or your prior income before your disability. Then take 50% and multiply it by your monthly indemnity (i.e. your income benefit). Say your income benefit if $5,000. So, $5,000 times 50% equals $2,500 residual disability benefit.

Another benefit of disability income insurance coverage is if you are partially disabled or proportionately disabled. The two definitions are similar and depend on what disability insurance company you are considering.

Partial Disability or Partially Disabled means that you are not totally disabled, and you are gainfully employed; and solely due to sickness or injury you are able to perform one or more, but not all, of the material and substantial duties of your regular occupation; or

you are unable to perform the material and substantial duties of your regular occupation for more than 1/2 of the time usually required. 

If you are considered partially disabled, you can receive partial indemnity each month you are partially disabled.  You typically receive one-half of the monthly income protection benefit, but not more than your loss of income.

Proportionate Disability or Proportionately Disabled means, that due to sickness or injury you are unable to perform one or more of the material and substantial duties of your regular occupation or you are unable to perform such duties for as much time as it would normally take you to do them; and your monthly income loss is at least 20% of your what you were making monthly prior to your disability.

Under an any gainful employment definition or any occupation definition of proportionate disability if due to sickness or injury you are unable to perform one or more of the material and substantial duties of any occupation for which you are reasonably suited because of education, training or experience, or you are unable to perform such duties for as much time as it would normally take you to do them.

If you are proportionately disabled because of injury or sickness and incur a 20% or greater loss of monthly income, the insurer may pay a percentage of your total disability monthly indemnity benefit that is proportionate to your lost income. This proportionate disability monthly indemnity benefit will be an amount determined each month by using a formula that takes your loss of income divided by your prior income, and then multiplies that number by your total monthly cash benefit.

For example, if your loss of monthly income was $5,000 and your previous income was $10,000 and your monthly benefit amount is 50%, then your proportionate disability benefit would be ($5K times 50%) or $2,500 each month.

If your injury or sickness results from any of the following conditions below. The insurer will waive the unexpired portion of your policy’s elimination period and benefits will start to accrue from the date of your presumptive total disability. Monthly cash payments will be paid for as long as your total disability continues, but not longer than the benefit period.

The disability insurance company will always consider you to be totally disabled even if you return to work at any occupation, if sickness or injury results in your total and complete loss of:

• speech;
• the sight in both eyes;
• hearing in both ears; or
• the use of both hands, both feet, or one hand and one foot.

Once your elimination period ends, under the waiver of premium benefit the disability insurance company will refund that portion of any premium paid which applies to the period of disability after you were first disabled in the same claim. Further, the insurer then waives any later premiums that are due while you are continuously disabled in the same claim and receiving benefits for the disability.

Most group disability insurance plans, particularly long-term disability plans, allow a two year own occupation definition of total disability. After the 24 month own occupation period, the coverage changes to any occupation total disability definition.

If you only have an employer disability insurance policy, consider supplemental disability insurance with a solid own occupation disability income protection company.

Want to learn more? Please read our Disability Income Insurance Guide for more on the different individual private policies and options available.