[Editor's Note: If doctors know anything about disability insurance, it is that they should buy “own occupation” disability insurance, and preferably make sure that their specialty is designated as their occupation. I recently had an inquiry from a reader about just how important “own occupation” is, and whether it is really necessary. I asked blog advertiser Jamie Fleischner, CLU, CHFC, LUTCF with Set For Life Insurance to address the question. Our financial relationship is that she sends me money and I put her ads up on the site. This is not a paid-for post; neither she nor I received compensation from the other for this post.]
How important are own-occupation riders for non-procedural fields, and what is the role of transitional own-occupation riders?
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 $250k elsewhere, the benefits would start to reduce. Looking at it realistically, if you were earning more than $250k elsewhere while on claim, there is no more economic loss. In over 20 years in the business, I've yet to have a client earn more elsewhere while on claim.
With some carriers such as MetLife (depending on the state you reside), transitional occupation is the only option. Other carriers such as Principal offer a choice between transitional occupation and own occupation (they call it regular 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 (almost a third of all claims) 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.
Own occupation (make sure occupation is defined as your specialty, not just “physician”): 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.
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 won't pay you more than you were making before.
Modified own occupation: Your policy will only pay cannot work in your occupation/specialty AND if you are not working in another field
Any occupation: Your policy will only pay if you cannot work in any occupation.
Be aware that the lower two categories are common in group disability policies. But 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. Both my individual and my group policy are true specialty-specific own-occupation policies.]
What do you think? Is your disability policy true own occupation or something else? Why or why not?