By Dr. James M. Dahle, Emergency Physician, WCI Founder
If doctors know anything about disability insurance, it's that they should buy “own occupation” insurance and preferably make sure that their specialty is designated as their occupation. WCI often gets inquiries from readers about just how important “own occupation” is and whether it is really necessary.
Definition of Disability and Your Policy
The most important feature is the definition of disability. Unlike life insurance, where life and death are pretty black and white, disability has 50 shades of gray.
Own occupation: Your policy will pay if you cannot work in your occupation/specialty, even if you can and do work in another field and make as much money as you want. Just make sure that your occupation is defined as your specialty, not just “physician”.
Own occupation policies cover people based on the occupational duties they’re performing at the time of claim. If your policy includes an own occupation definition of total disability and you are exclusively performing the customary duties of your medical specialty or sub-specialty at the time of claim, the policy will cover you when unable to perform your specialty or sub-specialty. If you have transitioned into a different role or expanded into a new career path that requires much less direct patient contact or procedural duties, you may no longer be considered totally disabled when unable to work in your specialty or sub-specialty. This is because your “occupation(s)” involves additional material and substantial duties, no longer limited to the performance of your medical specialty or sub-specialty. In these instances, you may be considered partially disabled or not disabled at all, depending on the exact circumstances.
Transitional own occupation: Your policy will pay if you cannot work in your occupation/specialty, even if you can and do work in another field. But if you exceed your previous income while you now work in another field, your monthly benefit from the policy would likely be lowered.
Modified own occupation: Your policy will only pay if you can't work in your occupation/specialty AND if you are not working in another field. This definition is also sometimes called “Own Occupation, Not Engaged” or “Own Occupation, Not Working.”
Any occupation: Your policy will only pay if you cannot work in any occupation. Note that some policies are own occupation for a couple of years, then transition to any occupation.
Be aware that the last two categories are common in group disability policies. Naturally, the less risk you ask an insurance company to take on, the less expensive the policy. My sense is that most procedural physicians are going to want at least transitional own occupation, and most non-procedural physicians are going to want at least modified own occupation, depending on the price difference. Though I no longer have disability insurance, I used to have true specialty-specific, own-occupation policies in both my individual and group plans.
What Definition of Disability Is Important for Physicians?
Own occupation, specialty-specific coverage. That's what you want. The definition of disability is all-important. The most important aspect of a policy is that it actually pays you when you become disabled. This is particularly important for surgeons, dentists, and other procedural specialties, but most specialties do at least some procedures. You don't want a policy that incentivizes you to not do any work at all after a disability or, worse, won't pay you because you can still do some sort of work you don't actually want to do. There's a reason people have to hire an attorney to get their Social Security disability benefits. With a strong definition of disability, you won't have to do that. Yes, it costs more to get a top-notch policy from one of the Big 5-6 companies, but you get what you pay for.
A few years ago, we asked blog advertiser Jamie Fleischner, CLU, CHFC, LUTCF, with Set for Life Insurance to address the question of just how important “own occupation” is and whether it is really necessary.
Here's what she wrote:
Q. How important are own-occupation riders for non-procedural fields, and what is the role of transitional own-occupation riders?
A. “It is important for an individual disability insurance policy to cover you if you can't work in your medical specialty, even if you are not performing procedures. Without having an occupation-specific definition in your policy, you open yourself up for the risk of the insurance company deciding whether or not they think you could work in another capacity or are gainfully employed (depending on the contract). Having an occupation-specific rider protects you, as it gives you the control if you wish to work in another medical specialty or field of work. If you choose to work elsewhere, you will still be able to receive benefits. If you are capable of working in another capacity but choose not to while on claim, there are no negative consequences.
The transitional occupation rider protects you in the same way as the own occupation rider if you become too sick or injured to work in your specialty. The difference is that with the transitional rider, you are not able to double-dip. With an own occupation rider, you may earn an unlimited amount while on claim as long as you can't work in your medical specialty. With the transitional occupation rider, it covers you up to 100% of your income. Once you earn more while on claim, the insurance company will start to reduce benefits.
The transitional rider is a variation of the own occupation rider, and it is more than adequate. Using the analogy of homeowner's insurance, you are insuring your income up to 100%. With your home, you purchase insurance for the replacement cost of your home. If your home is worth $500,000, you purchase a policy that would pay $500,000 if the home burned down. Same with the transitional rider. If you are earning $250,000, the policy would pay you benefits even if you work elsewhere. If you were to earn more than $250,000 elsewhere, the benefits would start to reduce. Looking at it realistically, if you were earning more than $250,000 elsewhere while on claim, there is no more economic loss.
With some carriers (depending on the state you reside in), transitional occupation is the only option. Other carriers, such as Principal, offer a choice between transitional occupation and own occupation. With the Principal policy, choosing the transitional occupation allows you to eliminate a mental nervous limitation. Based on experience, you are more likely to file a claim for a mental nervous condition than for a true own occupation claim where you earn more money elsewhere. Guardian also allows you to choose between a true own occupation rider and a modified own occupation rider. I would not recommend the modified own occupation rider for a physician as it makes it much more restrictive, and you do not save much on premiums.
It is important for all physicians regardless of specialty to have coverage in their specialty whether it is an own occupation or transitional occupation rider. Without coverage in your specialty, your policy becomes much more restrictive and limited if you ever file a claim. This is the most important part of your contract as it determines how and if a company will ever file a claim. Without it, your policy becomes an ‘any occupation' or ‘total disability' policy, which would cover you in catastrophic situations if you are sick or hurt and are not able to work in any capacity.”
More recently, another agent who advertises here, Scott Nelson-Archer CLU, ChFC, provided a counterpoint in a recent comment:
“A lot of folks in the primary care and non-technical specialties do buy Own Occupation Not Engaged once they are informed about it. Let’s face it, if one is in psychiatry, family medicine, internal medicine, pediatrics, and so on, and become so disabled that you can’t do that job even on a partial basis it is hard to then come up with a different occupation which you could do while not having the skills to do your medical specialty. I am not saying there are no scenarios but there are not many and then it becomes a matter of probabilities vs. possibilities and how you want to spend your money. Now if you are an ER doc like Jim (WCI) then you certainly need True Own Occupation, just like Anesthesia, all Surgeons, Interventional Radiologist and several other specialties, in my opinion.
At the end of the day, the contract is the client’s contract not my or any other rep's contract. Whatever the client wants is what we will get for them and they should buy, but I think having the knowledge and understanding of options is important in making a good decision on this very important topic.”
Scott also warned about the importance of understanding any group policy you may own. He says:
“Now most employer provided policies will tell you in the brochure, online write up and such that they are Own Occupation contracts but they will also go on to tell you that ‘this brochure does alter the policy, please see the policy for exact details'. Always get a copy of the policy and read the policy or send it to someone to read for you and show you what the performance metrics are. The vast majority I see will state Own Occupation Not Working then after 24 months the carrier can force you into any occupation they think is reasonable for you. That is not a good solution for any doctor because there is too much experience and too much education and thus it opens up the opportunities for ‘reasonable occupation' way too much.”
Be Wary of Northwestern Mutual's “Medical Own Occupation” Policy
I understand that decades ago Northwestern Mutual (NML) used to have a true own occupation definition that probably worked just fine for doctors. I don't know why, but the company went away from it. Then it came up with a “Medical Occupation Definition” (MOD), which sounds awesome because it's “Medical” and we're “Medical” so it must be great, right? Except it's not. It's not based on the inability to do your job; it's based on a loss of income. So if a doctor chose to work at something other than what they were disabled from, they were only paid proportionately rather than getting their full benefit.
Well, Northwestern Mutual realized doctors in the know weren't so interested in that. Doctors wanted true own occupation disability insurance. So NML came up with a “Medical Own Occupation Definition” (MOOD). Not only does it have the words “own occupation” in it, but it also has the word “medical” in it. So it must be even better than regular old own occupation insurance, right? Well, not exactly.
As insurance expert and WCI advertiser Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF, wrote a few years ago:
“Northwestern Mutual used this ‘unique' definition that states the physician can be considered totally disabled in one of two ways.
- If you are Totally Disabled and you can no longer do any of your substantial and material duties, you can take your full disability benefit.
- If you can do one or more of your substantial and material duties, you can change your occupation altogether and receive some or all of your benefit.
To be considered Totally Disabled the second way; you must meet all of the following:
- The majority of your time prior to Disability has to be spent in direct patient care and services
- You are unable to perform the duties that accounted for more than 50% of billed charges
- You are not working
Billing Codes mean codes generally accepted by the healthcare and insurance industries, such as Current Procedural Terminology (CPT) or American Dental Association (ADA), that are used to identify and describe medical, surgical, diagnostic, or dental services directly performed by the Insured.
If the Insured can perform one or more of the substantial and material duties of the Regular Occupation and is not considered Totally Disabled, the Insured may qualify as Partially Disabled.”
It's certainly something to consider.
Listen, disability insurance is expensive, especially if you're a resident or a young attending. But disability insurance is all about mitigating risks that you cannot afford to self-insure against. It doesn't make sense to calculate your return because you really do have a need for this insurance. If you become disabled as a doctor before you're financially independent, it is a financial catastrophe.
Long-term disability insurance shields the most valuable financial asset of a doctor—your ability to trade your time for money at a high rate for the next 30-40 years. Doing it with an own occupation policy is the best protection you can get.
If you need help evaluating your disability policies or just need to get this important protection in place, be sure to check out our recommended insurance agents.
What do you think? Is your disability policy true own occupation, modified own occupation, or something else? Why or why not? Comment below!
[This updated post was originally posted in 2014.]