True "own-occupation", modified "own-occupation", "any reasonable" occupation, "loss of earnings"……wow!  Since the bottom fell out of the individual disability marketplace in 1996, most of the insurers that chose to stay in the DI business have dramatically changed the contract language in their new disability portfolios. Gone are the days when most major carriers’ contracts were essentially the same. Before 1996, most carriers offered a true "own-occupation" definition of total disability in their top-tier disability contract. Today, there are very few companies that still offer this vital benefit for dentists, most physicians, optometrists, attorneys, and other "white collar" professionals.

The purpose of this article is to help today’s prospective buyers of disability insurance fully understand the importance of the "total disability" definition in their contracts and the different "own occupation" clauses that exist in today’s market within this definition. When analyzing a disability policy, there are many options to consider: Partial or Residual disability clauses, Cost of Living Adjustment riders, Future Increase Option riders and others. The "heart" of your disability policy however, lies within the definition of total disability. This is the part of the contract that deals with protecting your ability to work in your "own-occupation". In today’s market you’ll find policies that vary widely in this all-important definition. The following is an explanation of the common definitions you’ll find in today’s market, as well as what I refer to as the true "own-occupation" definition.

The majority of top-tier disability policies issued before 1996 had what I refer to as true "own occupation" definitions of total disability. The definition simply read: You are considered totally disabled if, due to sickness or injury, you are unable to perform the material and substantial duties of your regular occupation. What this meant was that if you were totally disabled in your regular occupation (as an Optometrist, Dentist, Physician, Attorney, CPA, etc.) you would receive your full disability monthly benefit even if you chose to work in another gainful occupation after suffering the total disability - so long as you could not perform the substantial and material duties of your own occupation. Your benefits would not be reduced because of your earnings in the new occupation, as long as the sickness or injury prevented you from working in your regular occupation. When I refer to the phrase "true own-occupation," I’m referring to this simple definition in bold above. This definition protects your ability to perform the duties of your specific occupation for the entire benefit period with no reduction in benefits if you choose to earn income in another job after becoming totally disabled in your regular occupation. This is the benefit that I insist on for my professional clients because it offers the most comprehensive coverage and recognizes your ability to work in a specific occupation.

The true "own occupation" provision can also help compensate you for the lost opportunity for income growth in your regular occupation that you would lose due to the disability. Think about it: How much money would you have made after 20 years establishing your dental practice? Shouldn’t you be fully compensated with your disability coverage if you lost the opportunity to be a dentist and earn that income? Only a true "own occupation" provision in your disability policy will pay you the full benefit you deserve if you lose your ability to be a dentist. Carrying anything but the true "own occupation" definition doesn’t make financial sense since there’s still one available.

As I’ll go on to explain, there are many new twists on this old policy definition that effectively dilute many of today’s newer policies. Please note that there are very few companies that still offer this definition for their top occupation classes, which include dentists, most physicians, attorneys, CPA’s and most professional executives. One of these is Guardian, which offers this superior protection through its wholly owned subsidiary, The Berkshire Life Insurance Company of America, Pittsfield, MA.

In my experience in today’s DI market, "modified own-occupation" is the most common definition available in the remaining carriers’ current DI offerings. This definition of total disability basically reads: You are totally disabled, if solely due to sickness or injury, you cannot perform the material and substantial duties of your regular occupation and you are not working in any gainful occupation. The key modification in the definition is the underlined part. Basically it says that if you can’t work in your regular occupation because of sickness or injury, you’ll be paid your full disability benefit. However, if choose to work elsewhere and you qualify for partial or residual disability benefits (and the policy provides for such benefits), then benefits are based on your percentage loss of earned income. As your income in your new occupation grows, your benefit drops, and can eventually go away completely with such policies.

Think about it for a minute: if you become disabled as a dentist at a relatively young age from a hand or back injury, how likely are you to pursue some other occupation to make a living? The most common answer is: very likely. No one wants to sit around and never pursue another career. You mind still works, and for that matter, most of your body – even though you may not be able to practice dentistry. Also, disability insurance never covers more than 70% of net income, and who wants to resolve themselves to living off a limited income forever?

I don’t recommend policies with this "modified own occupation " definition because the true "own-occupation" contract is still available for most of my prospective clients. Especially in an occupation like dentistry or other medical occupations where a relatively minor injury can cause a total disability (carpel tunnel syndrome, a back injury, nerve damage in a hand, an eye injury, etc.), having a contract that will reduce and likely eventually eliminate your benefits if you go back to work in another occupation may not offer adequate protection. If the totally disabled dentist becomes a success doing something else, say selling disability insurance, then he gets punished financially. Often, when he or she earns 80% of their pre-disability income in a new occupation, then benefits on the policy go away completely. Disability income policies usually provide coverage for between 50-60% of our earned income. This clause will undoubtedly hurt us financially if we choose to go back to work in another occupation.

These versions are an interesting twist on an "Own Occupation" definition of total disability. Basically, they provide a definition that reads something like this: For the first 12, 24 or 60 months of a covered claim, you are totally disabled, if due to sickness or injury, you are unable to perform the material and substantial duties of your regular occupation. Thereafter, the definition includes the phrase and you are not working in any gainful occupation. The one and two-year true "own- occupation" definitions don’t offer much more protection than the strictly modified version described above. Think about it for a minute. If you couldn’t practice Optometry, what’s the likelihood that you would go off and work full time in another gainful occupation within a one or two-year period of time after suffering the total disability? It’s the longer term that concerns me for my clients, because most would eventually want to do something else for a living if they couldn’t practice Optometry (depending on the nature of the disability, of course).

Loss of earnings contracts are disability contracts that cleverly avoid defining total disability altogether. These contracts read as if this is a positive thing, with wording like "total disability is not defined and is never required." It sounds positive because you don’t have to be totally disabled to receive benefits right? Well what if you do become totally disabled? Because the contract doesn’t define total disability, it strictly goes by a loss of earnings formula to determine your disability benefits, whether you’re working in your "own-occupation" or another. It will essentially pay benefits the same as the modified contract described earlier.

I’ve noticed more and more carriers offering "any gainful occupation" and "any gainful reasonable occupation" clauses in their new policies. I personally consider these to be inadequate. Essentially, these policies define total disability as your inability to perform the duties of either any gainful occupation or any gainful reasonable occupation for which you may be suited by training, education or experience. Some will go on to temper this definition by including due regard to pre-disability earnings. It’s obviously better to have the later definition because of the "reasonable" clause, but I still would never recommend either.

Some carriers today are offering contracts with total disability definitions that are a mix of two or more of the definitions above. These can be quite confusing to read and fully understand. An example would be a "modified" definition coupled with an "any reasonable occupation" clause after a period of five years of total disability. They’re a lot of fun to read.

I think I’ve covered virtually all the current total disability definitions available in today’s disability insurance market. Disability contracts are exactly that: a contract between the insured and the insurance company. Disability contracts have always been somewhat complicated because of the number of definitions and optional benefits from which to choose. If you take anything from this article, let it be the understanding that the heart of your coverage is the total disability definition. Read that definition first before you move on to the other available options. For my clients, I want their income protected! I recommend the true "Own Occupation" coverage whenever it’s available for my clients’ occupation class. Think about it. You’ve spent years studying and paying to become a professional. Whether you’re a dentist or dental specialist, physician, Optometrist, attorney, CPA or a professional executive, you deserve to have your ability to work in that specific occupation properly protected. After all, why do you buy the coverage in the first place?