How to Choose the Definition of Disability You Need in a Disability Insurance Policy
Updated: Jan 31
If you enjoy your career, then you need a specific kind of disability insurance that will pay benefits even if you can do something else. This type of insurance is broadly known as own occupation disability insurance, and is important for protecting your lifestyle and controlling your own destiny. Otherwise, you could be financially compelled to do something you don't want to do and earn less money.
There are several types of own occupation disability insurance, which offer varying degrees of personal control. This article will review the types of definitions of disability available in the insurance marketplace and how to select one.
The Landscape of Definitions
One of the following types of definitions of Total Disability apply to any given policy:
In addition, a policy may include one or more enhancements which can compliment the definition by providing alternative paths to benefits or additional benefits.
Now, let's get into what these mean.
Two Year Own Occupation and Not Working
(Any Occupation Thereafter)
The Two Year Own Occupation and Not Working definition changes the definition of disability after the claim has been running for two years. In order to receive benefits during the first two years, it requires a person to be unable to perform the substantial and material duties of his or her own occupation and not be working. After that, the any Occupation definition of disability applies, which requires a person to be unable to work in any other suitable occupation.
Here's an example:
Policy Excerpt: Example of the Two Year Own Occupation Definition |
TOTAL DISABILITY OR TOTALLY DISABLED - Until We have paid benefits for two years in the same claim, 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 and You are not Gainfully Employed. Thereafter, 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 Any Occupation. Working an average of more than 40 hours in a week, in itself, is not a material and substantial duty. Any Occupation means any occupation for which You are or become reasonably suited by Your education, training, or experience. |
The advantage of the two year own occupation definition is low cost premiums, which is made possible by more aggressive claims management. After two years on claim, the insurance company has license to be creative about what you could theoretically do, without consideration for job satisfaction.
The disadvantage of the two year own occupation definition is mostly felt by highly skilled workers who are invested in a certain career path due to personal preference or compensation, and don't appreciate being forced to do something else.
So who uses it? Mostly employers, in group long term disability (LTD) programs. Group LTD typically has a two year own occupation definition because it facilitates return-to-work, which employers have a financial interest in. It is simply not in the employer's interest to pay employees to sit out any longer than absolutely necessary, and so LTD is not designed for employee choice.
Choose a Two Year Own Occupation definition if
Cost is a significant factor
You would take the bet that if you still can't work in your occupation after two years, you probably won't be able to do anything else either.
Some carriers in the individual marketplace don't bother to offer it because the any-occupation definition is usually what buyers are trying to avoid. Two year own occupation coverage is available (among other options) from:
Full Own Occupation and Not Working
The Full Own Occupation and Not Working definition of disability holds constant the same own occupation definition for the full duration of Benefit Period, which is typically to age 65, 67 or 70. For purposes of receiving benefits, it doesn't matter whether it is possible to work in a different occupation at any point in time.
What might cause an own occupation disability, but not an any occupation disability? According to the Social Security Administration, own occupation disabilities are often traceable to impairments such as:
Chronic liver disease
Organic mental disorders
Anxiety disorders
Essential hypertension
Chronic pulmonary insufficiency
Osteoarthrosis and allied disorders
Diabetes mellitus
Epilepsy
Affective mood disorders
Disorders of back (discogenic and degenerative)
Sprains and strains (all types)
Schizophrenic, paranoid, and other psychotic disorders
Other and unspecified arthropathies
Other disorders of the nervous system Inflammatory arthritis
No predetermined list code applicable
Disorders of muscle, ligament, and fascia
Obesity and other hyperalimentation
Borderline intellectual functioning
Musculoskeletal injuries (amputation)
Cardiomyopathy
Fractures of lower limb
Other disorders of bone and cartilage (osteoporosis)
Asthma
Fractures of upper limb
Late effects of cerebrovascular disease Chronic ischemic heart disease
Carpal tunnel syndrome
Blindness and low vision
Source: Social Security Bulletin; When Impairments Cause a Change in Occupation; by Alexander Strand and Brad Telkamp; Vol. 75, No. 4; 2015; p11
Social Security tracks this kind of information because it doesn't pay for own occupation disabilities.
It is important to understand that claims determinations - for any insurer - are based on the strength of the nexus between a health problem and reduced work performance, not the health problem itself. The critical question in any claim is "disabled from what?", which opens the door to creativity unless otherwise limited. Setting the out-of-bounds marker is the point of the full own occupation definition.
In the excerpts below, notice also how the definition of disability keeps the focus on Your Occupation even after two years on claim.
Policy Excerpt: Example of the Full Own Occupation and Not Working Definition |
TOTAL DISABILITY OR TOTALLY DISABLED - Until We have paid benefits for two years in the same claim, 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. You will be Totally Disabled even if You are Gainfully Employed in another occupation so long as, solely due to Injury or Sickness, You are not able to work in Your Occupation. Thereafter, 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 and You are not Gainfully Employed. Working an average of more than 40 hours in a week, in itself, is not a material and substantial duty. |
Source: Guardian; Specimen policy form 18id - ICC version for generic states; page 6 variant 2 of 5; Not for CA. Refer to state-specific version. This variant is actually a hybrid definition where the first 2 years uses the more favorable True Own Occupation definition, but this is the closest matching definition the policy makes available. |
Policy Excerpt: Example of the Full Own Occupation and Not Working Definition |
TOTAL DISABILITY OR TOTALLY DISABLED - The occurrence of a condition caused by a Sickness or Injury, in which the Insured cannot perform the main duties of his/her Occupation and the Insured is not working at any occupation. The Insured must be under a Doctor’s Care. The Disability must begin while this Policy is In Force |
Policy Excerpt: Example of the Full Own Occupation and Not Working Definition |
TOTAL DISABILITY – means solely due to Injury or Sickness:
1. You are unable to perform the Substantial and Material Duties of Your Own Occupation; and
2. You are not Working; and
3. You satisfy the requirements of the Claim Information section of this policy.
If You are Retired, Total Disability means, solely due to Injury or Sickness, You are unable to perform any of the normal activities of a retired person in good health and of like age and You satisfy the requirements of the Claim Information section of this policy. If You are Unemployed, Total Disability means, solely due to Injury or Sickness, You are prevented from obtaining a job that You are reasonably suited to by Your education, training and experience and You satisfy the requirements of the Claim Information section of this policy. |
This definition type maintains the "not working" requirement, which restricts a person from working to earn extra money, even on an incidental basis. The purpose of the "not working" requirement is to prevent moonlighting in a different occupation while on claim. Effectively, it pins people down when they realize that monthly disability benefits are not enough.
Not being able to work on the side is more restrictive in practice than it sounds in theory because people underestimate their needs. In particular, they forget about medical insurance premiums which become a 100% individual responsibility, increasing household overhead. Then there is inflation and extra help around the house. Without a way to work on the side, there is no way to relieve the financial pressure. For the insurer, financial hardship shortens claims, and the premium reflects this.
The not working requirement is easy for the insurer to enforce because tax returns may be requested as part of normal claims processing.
The cost of full own occupation and not working disability insurance is roughly 15%-20% more than Two Year Own Occupation coverage, although it can be more for some blue and grey collar occupations.
Choose a Full Own Occupation and Not Working definition if
You want disability benefits to continue - for longer than just 2 years - even if you could theoretically do something else, and
Your overhead is relatively low compared to earnings, with margin to spare because you'll probably be taking on some new expenses including individual medical insurance premiums. And...
You don't need to work to be happy, and
Premium cost is a concern.
Availability of full own occupation and not working coverage is universal. It is also known as modified own occupation in industry jargon because it adds the "not working" constraint to an otherwise straightforward definition.
True Own Occupation
The True Own Occupation definition of disability removes the "not working" requirement. A True Own Occupation definition permits a disabled person - while on claim - to moonlight in a different occupation without disqualifying themselves or reducing benefits, even if the total income from all sources is higher than pre-disability earnings.
Example of True Own Occupation
A Financial Planner loses his hearing due to a viral infection, making it impossible to meet with clients. With True Own Occupation Disability Insurance, full benefits are payable without offset even if the Financial Planner earns income in a different occupation such as:
Authoring articles or books
Preparing deliverables for the clients of other Financial Planners
Research
Development of training materials
Compliance reviews
Farming
Policy Excerpt: Example of the True Own Occupation Definition |
TOTAL DISABILITY OR TOTALLY DISABLED - 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. You will be Totally Disabled even if You are Gainfully Employed in another occupation so long as, solely due to Injury or Sickness, You are not able to work in Your Occupation. Working an average of more than 40 hours in a week, in itself, is not a material and substantial duty. |
Policy Excerpt: Example of the True Own Occupation Definition |
TOTAL DISABILITY OR TOTALLY DISABLED - The occurrence of a condition caused by a Sickness or Injury in which the Insured:- cannot perform the main duties of his/her Occupation;- is working in another occupation;- must be under a Doctor’s Care; and- the Disability must begin while this Rider is In Force. |
Policy Excerpt: Example of the True Own Occupation Definition |
TOTAL DISABILITY – means solely due to Injury or Sickness: 1. You are unable to perform the Substantial and Material Duties of Your Own Occupation; and 2. You are not Working in Your Own Occupation; and 3. You satisfy the requirements of the Claim Information section of this policy. You will be Totally Disabled even if You are Working in another occupation as long as You are unable to perform the Substantial and Material Duties of Your Own Occupation. If You are Retired, Total Disability means, solely due to Injury or Sickness, You are unable to perform any of the normal activities of a retired person in good health and of like age and You satisfy the requirements of the Claim Information section of this policy. If You are Unemployed, Total Disability means, solely due to Injury or Sickness, You are prevented from obtaining a job that You are reasonably suited to by Your education, training and experience and You satisfy the requirements of the Claim Information section of this policy. |
The need to earn extra money on the side while on claim becomes more compelling with the passage of time, as financial pressures mount and there is newfound realization of what kind of work is possible.
Why Do People Moonlight on Claim?
The benefit isn't enough. In particular, medical insurance premiums shift from the employer to the individual, increasing household overhead.
Cutting back on personal financial obligations may be harder than anticipated, especially with a family to support and uncertainty of recovery.
If other insurance exists through an employer's group LTD program, LTD would compel a person back to work into a different occupation.
Some people must work for their own sanity.
The advantages of the true own occupation definition are mostly about the freedom to work on one's own terms. In short:
Economically, there is a path to full income replacement, making it possible to maintain the same standard of living that would have been.
It allows a person to focus on what they can do rather than what they can't, and avoid being defined by their disability.
This definition is best for individuals with a strong work ethic or want to keep open a path to 100% earnings replacement just in case benefits turn out to be inadequate. True own occupation is the industry standard for physicians, to the point where it would be strange not to have it.
Choose a True Own Occupation Definition if
You want as much control as possible over the terms of work.
Household overhead runs pretty close to 100% of earnings, especially after adding medical premiums and family obligations, or
Work is personally fulfilling and it would take a lot to stop you.
The cost of true own occupation insurance adds roughly 8%-35% to than two year own occupation coverage, with the largest variable being occupation. A software engineer might be closer to 8%, whereas a cardiovascular surgeon might be around 30%.
Availability of this definition type is universal among the leading disability carriers that serve high income and well educated workers. True own occupation may be identified by different names depending on the carrier, such as "Regular Occupation" or "Pure Own Occupation". MassMutual does not use a label, instead referring it's non-descript sounding Own Occupation Rider.
Specialty Specific Disability Insurance
Specialty specific disability insurance (a.k.a., own specialty disability insurance) is an enhancement available for physicians, dentists and attorneys. These policies narrowly define the word Occupation.
Policy Excerpt: Example of Specialty Own Occupation |
YOUR OCCUPATION - If You have limited Your Occupation to the performance of the material and substantial duties of a single medical specialty, We will deem that specialty to be Your Occupation. |
Policy Excerpt: Example of Specialty Own Occupation |
OWN OCCUPATION - If Your Own Occupation is limited to a single professionally recognized specialty in medicine or dentistry and is in the scope of your degree and/or license, we will consider that specialty to be Your Own Occupation. If Your Own Occupation is in the practice of law, the specialty of law You were routinely performing when Your Disability begins will be considered Your Own Occupation. |
Policy Excerpt: Example of Specialty Own Occupation |
If your Occupation is that of a medical or dental specialty, and the main duties of that specialty are verified by the Billing Codes for the 12 months before Disability began, we will deem that specialty to be your Occupation. |
For physicians performing surgical procedures or providing hands-on care, it may be possible to qualify as disabled based on inability to perform these specific duties alone. Guardian's Enhanced True Own Occupation feature is built into policy language using the 5th of five possible variants of the definition of Total Disability.
For physicians and dentists, specialty specific disability insurance is available from:
For attorneys, specialty disability insurance is available through
One other carrier in all states, which is included in our standard Market Search Report when you request a proposal.
The cost of specialty specific own occupation insurance is typically bound up with the true own occupation definition of disability. So, you might request "true own occupation" coverage - which does have a charge - but the specialty language that comes with it does not.
Principal is the only carrier that makes specialty language available with the very affordably priced own occupation and not working definition. (Principal does not have specialty language availability in CA, FL, MT, NY, and SC.) Every other carrier issues specialty coverage only in conjunction with true own occupation.
Partial Disability
Partial disability permits a person to qualify as disabled if working in a reduced capacity, even in one's own occupation. As such, this definition offers the most choice and flexibility of all definitions, and can be especially valuable if your occupation is the only thing you want to do or can imagine yourself doing.
"I would almost certainly work. The question is how much I would earn."
There is ample data to suggest that people don't let health problems stop them from working altogether. Instead, people choose to work with ongoing impairments. According to the Social Security Administration, 95% of return to work scenarios are due to reasons other than improved health.
Source: Social Security Administration; Industry, Occupation, and Disability Insurance Beneficiary Work Return; Social Security Bulletin; by Evan S Schechter; Vol. 62, No. 1; 1999; p19; for professional services industry sector
Don't confuse return to work with a return to normal. Return to work is often a fragile endeavor, fraught with persistent underperformance, uncertainty, ongoing economic loss, and job instability. Occupations that depend on a high degree of cognitive acuity, energy, concentration, interpersonal skills, travel, or continuous attendance are especially susceptible to instability in the return to work phase due to somewhat greater standards of subjectivity. That's why the choice to stay out until you are reasonably confident in the overall stability of the situation is so important, and when you do choose to re-engage, you are economically secure.
Is Partial disability a must-have feature? One way to tell is to look around at your peers. Within your occupation, do earnings vary widely from one person to the next? If so, the mere ability to work is not a sufficient test. The earnings also matter. Earnings variability within one's occupation is a strong signal that not only is own occupation disability insurance necessary, but that it is necessary to have a particular kind of own occupation disability insurance that insures the income itself, if you are working.
If the major concern is reduced earnings in your occupation, a good partial disability provision is important.
When pivoting to a loss of income claim, the benefit is calculated based on the loss of income relative to what it was before disability started. Exactly what time frame is used matters. Is it based on last year's tax returns? What if last year was down, say, due a gradually deteriorating health situation? How much choice do you have in selecting a favorable lookback period? These questions should not be dismissed as minor details because they can set the trajectory of benefits over the remainder of your career.
Comparing Partial disability provisions is complex and the exact wording is lengthy. Some of the key areas of differentiation include:
Lookback period for calculating Pre-Disability Earnings - What is the lookback period for purposes of calculating pre-disability earnings?
Multiple Triggers - Is it possible to start the clock ticking on the Elimination Period before earnings have declined, say, due to loss of time or duties alone? This might be important if earnings trail by several months after they are earned, as they do with accounts receivables.
Recovery Benefits - What if loss of income continues after disability has ended, say, due to the infrequency of bonus payouts?
Causality - What if there is more than one cause contributing to loss of income besides a health problem?
The insurance company with the richest loss of income coverage is MassMutual, with it's generously worded Extended Partial Disability Benefits Rider. If you are in California, refer to MassMutual's California-specific reference material. MassMutual ticks all the boxes and is unique in it's array of lookback period choices, causality language, and highly customizable options to boost loss of income benefits when programming around group LTD.
Add a Partial Disability definition if
A health problem would not stop you from working for very long, but it might reduce how much you earn.
It's hard to imagine doing anything else
Earnings vary significantly between individuals in your occupation, or
You are covered under an employer's group Long Term Disability program, which is likely to be aggressive about getting you back to work
There is any doubt. It should be included by default.
A partial disability definition is typically available by rider, for additional cost, meaning that it is elected in addition to the base policy's definition of disabled, not as an alternative. It is not necessary to weigh some other definition of disabled versus partial because they can both be present. The decision at the time of purchase is whether to add the partial disability rider in order to have additional ways to qualify as disabled.
"Residual" is another term for Partial, which is derived from the lingering nature of underperformance after returning to work. As in "Bob's back, but he's not all there. He is residually disabled." For purposes of identifying whether it is possible to receive benefits without being totally disabled, partial and residual refer to the same general idea.
The cost to add a partial disability provision in an own occupation policy may be 10%-30%, depending on quality, occupation, and the existence of other provisions.
Presumptive Disability
The Presumptively Disabled definition of disability creates an alternative path to claim based on the health impairment alone, ignoring the nexus to work performance. It applies to a very limited range of impairments. If the disability qualifies as Presumptive, other definitions become irrelevant because Presumptive is the most favorable.
Policy Excerpt: Example of Presumptive Disability Language |
We will consider You to be Totally Disabled even if You are Gainfully Employed if, while the Policy is in force, Injury or Sickness results in Your total and complete loss of: - sight in both eyes; - hearing in both ears; - speech; or - the use, in their entirety, of both hands, both feet, or one hand and one foot. |
Policy Excerpt: Example of Presumptive Disability Language |
PRESUMPTIVE TOTAL DISABILITY -- The Insured is considered to have a Presumptive Total Disability even if he/she is able to work if certain conditions exist. These conditions are any of those listed below that begin while this Policy is In Force and are caused by Sickness or Injury: • complete loss of speech • complete loss of hearing in both ears • complete loss of sight in both eyes; or • complete loss of use of both hands, or both feet, or one hand and one foot. |
Policy Excerpt: Example of Presumptive Disability Language |
PRESUMPTIVE DISABILITY/PRESUMPTIVELY DISABLED – means, solely due to an Injury or Sickness, You have a total loss of use for any and every purpose or activity without any possibility of recovery of: 1. Power of speech; or 2. Hearing in both ears; or 3. Sight of both eyes; or 4. The use of both hands, both feet, or one hand and one foot. |
The value of Presumptive Disability is that gives the claimant so much choice. For example, a software engineer that loses his or her hearing (totally) would collect full benefits even if he or she continues to work as a software engineer regardless of earnings.
The Presumptive definition of disability is typically included automatically, at no additional cost, in addition to the base policy's definition of Total Disability.
Lifetime benefits for presumptive disabilities are available through Principal's HH750 policy series in California, and Florida, Montana, New York, and South Carolina as long as the base policy meets minimum requirements.
Catastrophic Disability
A Catastrophic disability can result in extra benefits if a Catastrophic rider is added to the policy. Here's a generic example of how Catastrophic disability might be defined:
1. Presumptively disabled (see above), or
2. Inability to perform any two (2) Activities of Daily Living (ADL), which are eating, dressing, bathing, transferring, dressing and continence, or
3. Requiring substantial supervision due to severe cognitive impairment.
The ADL and cognitive impairment triggers are strikingly similar to the triggers in tax qualified long term care insurance, which is designed to indemnify against the cost of caretakers. However, Catastrophic riders are not classified as long term care insurance for a variety of reasons, not least that Catastrophic riders terminate at age 65 or so, just when long term care becomes top of mind.
Catastrophic disability is an optional supplement and does not change the base policy's definition of Total Disability. Catastrophic benefits are normally provided by rider, for additional cost. If the catastrophic rider is included and the disability is catastrophic, extra benefits are paid, over and above the base policy benefits. The consumer's choice at the time of purchase is whether to include the Catastrophic rider for the supplemental benefits, and how much those supplemental benefits will be.
A typical catastrophic monthly benefit is equal to whatever fixed dollar monthly indemnity amount will bring total earnings replacement up to 100% at the time the policy is applied for. For example, if you earn $10,000 per month and the base policy benefit is $6,000, the catastrophic benefit would ordinarily be configured at $4,000.
The cost to add catastrophic disability benefits to a disability insurance policy is relatively incidental. In the above example, $4,000 per month of catastrophic benefit designed to pay until age 65 might add $10-$40 per month to the premium depending on age and occupation.
To Learn More
For more information on policies available in your state and to get proposals, please visit us at https://www.disabilityunderwriters.com.
The material above is a generic overview of the marketplace. For policy-specific information, refer to your policy.
Rip Curtis is a disability insurance broker with Disability Underwriters in Seattle, Washington.