What is Own Occupation Disability Insurance?
You may have heard that if you’re looking for disability insurance, you should be looking for “own occupation” coverage. In the past 20 years of working with clients to protect their income, I’ve heard it called “owner-occupation”, “owner-occupied”, “own-occ,” and a variety of other derivatives of the correct terminology “own occupation,” but the basic concept is that it’s a type of disability insurance that pays if you can’t do the duties of your current occupation, even if you can do another.
Why is it important?
It might seem like all disability insurance policies should pay you if you can’t do your job, but that’s not the case. In fact, most do not. Disability insurance is the only type of insurance policy that has different criteria for getting paid between competing policies. While one company’s policy might pay you if you can’t do your own occupation, another might only pay you if you can’t do any occupation. There are even policies that have a hybrid definition of what it means to be disabled – own occupation and not engaged in another occupation. These are called “modified own occupation” policies.
Why the different definitions and why should you care? Simple…It’s all about how much money needs to be paid out by the carrier in the event you meet their definition of what it means to be “disabled”. A true own occupation policy will pay you if you can’t do your specific occupation, even if you can do something else. This is a critical distinction, as it allows the insured to “double dip” and collect full disability benefits from their policy, as well as obtain income from a new job. I often have people tell me that they don’t feel this is important, but upon further consideration, they almost always see the value.
Let’s say you’re in a highly specialized field such as medicine, engineering, or law. You’ve spent many years studying for your profession and honing your craft. Because of that qualification, you’re compensated at a high level of income, of say, $100,000 or more per year. Now, due to sickness or injury, you’re no longer able to do your occupation. However, with a little retraining, you are able to do another occupation which may be not quite as specialized.
If you have a true “own occupation” disability insurance policy that is set to pay you $5,000 per month, and the new job you’re able to do after your disability will pay you $40,000/year. With your own occupation disability insurance policy, you’ll receive your salary of $40,000 PLUS your annual disability insurance benefits of $60,000 ($5,000/mo) – getting you back to your pre-disability income level of $100,000.
The same situation applies to those who aren’t as specialized in their occupation, or don’t earn quite as much. Someone making $50,000 per year, who could work in a lower capacity after a disability would still want their full disability insurance benefit to get them as close to their pre-disability income as possible.
What are the other options?
Own occupation isn’t the only option for coverage, and for some occupations, it might not even be available. Certain occupations with highly physical duties are not able to get a true own occupation policy. For these individuals, a modified own occupation policy is the next best option.
Modified Own Occupation
A modified own occupation policy is one where you would receive monthly disability benefits if you can’t work in your occupation, and you’ve chosen not to work in another occupation. This affords you the ability to choose to not work and still receive 100% of your monthly disability income benefits.
If you do go back to work in another occupation, however, your monthly benefits will be reduced based on your new income. So, in the above example, if you went from making $100,000 to $50,000, a modified own occupation policy would pay you 50% of your $5,000 monthly benefit because your income was reduced by 50%. This isn’t a bad option, but the cost difference between a true own occupation policy and this modified own occupation policy is only about 10%. It is always advisable to obtain true own occupation policy if it’s available to you.
Any Occupation
The type of policy that you want to stay away from whenever possible is the one that only pays if it is determined you can’t do any occupation. These “any occupation” policies may be the only option for those with jobs that have a high degree of manual duties or physical labor. Because these types of occupations require so many physical duties, and that physical effort is critical for performing the job, any small injury can be disabling. Think about a landscaper who injures his back. While this wouldn’t necessarily disable an attorney, it would most definitely make the landscaper’s job much more difficult, if not impossible. Because of this, insurance companies do not offer true own occupation coverage to these types of occupations with high physical labor requirements.
Whatever type of policy you qualify for, be sure that you get the best possible definition of disability available to you. Any disability insurance you get, will benefit you and help to protect your livelihood.
Request a free, no-obligation, instant quote from us now to see how much you qualify for, and what it costs to protect your income.
Still not sure if disability insurance is right for you? Read our article on the Top 3 Reasons to Buy Disability Insurance.
