There are two main categories of long-term disability insurance (LTD), based on the definition of disability. The first threshold is “own occupation,” meaning that you receive disability benefits if you are unable to perform your regular job. The other threshold is “any occupation,” meaning that you receive disability benefits only if you are unable to perform any gainful employment.
Every LTD policy is different. The fine print matters, particularly the definition of occupation and the definition of totally disabled. Insurance companies are notorious for selling these policies at significant premiums and then denying claims or terminating benefits. Make sure you read the terms of coverage carefully and talk to an attorney if you ever need to invoke the policy.
Understanding ‘own occupation’ disability insurance
As the term implies, most ‘own occupation’ policies pay disability benefits when you are incapable of resuming your chosen profession. For example, a surgeon or dentist who becomes unable to perform procedures on patients would be considered disabled from their occupation. However, some policies stretch the definition to include jobs in the same field that match their credentials or experience. That surgeon or dentist might be able to work as a consultant or instructor or expert witness, in which case they might not qualify for benefits.
Some policies have a favorable definition of own occupation but convert to any-occupation coverage after two years. Again, the coverage and exclusions vary from one LTD policy to the next. It is vital to know what you are purchasing so you are not blind-sided when an injury or medical condition forces you to stop practicing.
What is ‘any occupation’ disability?
This is a much narrower definition of disability. To qualify for benefits you must prove you are unable to sustain gainful employment in any job. Some policies are more generous, referring to any job that is suited to your training and experience. But most LTD policies use a stricter, literal definition. If you can work any job – even part-time or in a low-paying job unrelated to your profession – you would not qualify as disabled.
If you bring a claim for long-term disability, you may have to submit to an independent medical exam or meet with a vocational expert. Legal counsel can be critical in these situations, to help you qualify for benefits or to lay the groundwork for an appeal.
So why would anyone choose ‘any occupation’ insurance?
The premiums for own-occupation policies are substantially more expensive than any-occupation coverage. Yet opting for the cheaper coverage is arguably “penny-wise and pound-foolish.” Long-term disability insurance typically pays 50 to 60 percent of your pre-disability earnings. You can’t come close to replacing that income if you are forced to take a low-end job. On the other hand, some own-occupation policies allow you to earn other income while receiving full benefits.
Increasingly, insurance companies are moving away from offering individual LTD insurance, in favor of group policies through employers. In many cases, own-occupation coverage is not offered as an option. Employer-sponsored policies also fall under federal jurisdiction (ERISA), which is highly favorable to the insurers in policy disputes. At the risk of being redundant, this is why it is advisable for professionals to get legal advice – the earlier the better – in the event of a disability claim.