By Dr. James M. Dahle, 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.
Jamie Fleischner, CLU, ChFC, LUTCF
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.
OR
- 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.
Conclusion
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.]
For trans-occ, benefits cannot surpass your previous salary, is this salary based on when you went on disability? And is this salary adjusted for inflation? If I get fully disabled at age 30, is my salary at that point the same salary used in this trans-occ calculation at age 65?
I became disabled from my specialty due to an injury very early on in my career. My policy is an own occupation policy with the definition of total disability being unable to perform the usual routines and practices of my occupation. In the definitions I see that there is a change in the definition of total disability at age 65 to being unable to perform any occupation. My question: If I went out on claim 20 years ago and have been on claim since and have a lifetime coverage due to disability from an accident will the change in definition of total disability apply when I turn 65 or will it be the definition that was in place when I became disabled which is being unable to perform the usual routines and practices of my own occupation. I was a surgeon. Thank you.
Good question. I would assume it changes to any occupation at 65 since that’s what the policy seems to say, but you could call up an independent agent and ask them.
It will be based upon the policy language and not the definition of disability at the time of claim.
Good advice here. I would like to add: I am an ER doc and recently suffered a catastrophic illness and had to collect disability from my policy from Principal. Some things I learned: 1) the 90 days til payment is actually 120 days. They pay on the last day of the first month you can collect. Make sure to have 4 months of savings or a short term disability policy. 2) As soon as you suffer an illness that might be long term make a claim. It is easy to cancel a claim but your payment starts 120 days from the claim not the illness. I had a feeling my illness was going to be more severe and long term so I claimed very early and it was helpful. 3) review your coverages and add more as needed every 5 years. You make more or have kids? Need more coverage. I was fortunate to have added nearly double my coverage 5 years prior. That helped save me financially. 4) make sure to pay with post tax $ so your benefits are tax free. That also has been very helpful for me. Especially now that I am part-time, having half my income be tax free really is nice. 5) make sure to get the rider that allows you to work part time. Some are all or nothing. This also has allowed me to work more as I am able. 6) even if your employer gives you a big fat policy for free buy your own. If you leave your job you will be older and buying coverage will be more expensive. Having your own policy gives you continuous good coverage and if you get more through your job that is just a bonus. 7) get your policy as soon as possible. A lot of Med schools and residents get offered cheap coverage that is very good. If you can, buy it. I was too poor and did not until I started my first job.
1) Interesting. Kind of a jerk move isn’t it? I guess they look at it like a paycheck. It starts accumulating at 90 days but the payment comes at 120 I suppose.
2) Are you SURE? That’s not the way most policies are written in my understanding.
3) No need to add more coverage because your income went up. You do need to add it if your spending goes up though, and that often happens when income goes up and certainly happens when kids come along. But your nest egg is also growing, lowering your need for DI and LI.
4) It’s actually pretty hard to pay with pre-tax dollars unless it’s an employer provided group policy.
I am not sure beyond what I was told. My first payment was 120 days from the date of claim. Perhaps I was told wrong. Would be interesting to find out. In my case the date of illness beginning was just 4 days prior to my claim so I never bothered to inquire if I was told wrong.
I did not say you HAD to get more coverage if income went up, only that you should review your coverage when it does as many policies like mine allow you to add coverage based on increased income. Whether you add or not is up to you and your unique situation. Yes it has to do with how much you spend. But just bc you earn a lot and have a plan to not need DI in the future does not mean it is guaranteed. For instance, my collecting disability meant that I was not destitute but I still had a monthly shortfall. I had to cut expenses too. Including saving for retirement. A young person who gets a new higher paying job and has low expenses should continue to increase DI to a level that would enable them to collect and be able to invest to be safe for the future. I do have an inflation adjusted policy so my benefits adjust upward for inflation— also a good thing to have. I was old enough to have had a cushion of investments to make it so I did not need to invest during my illness and still be fine for the future. A younger person with income but no nest egg would need more DI until they have enough saved to make DI less needed IMO.
It is very easy to pay with pre-tax $. I have an s-corp and I could pay from my business account vs my personal account. I assumed many of your readers are incorporated as well. If so paying pre-tax is simple and needs to be avoided.
I agree you need enough DI to cover your expenses and to save for retirement. I’m sorry to hear you did not have that much, but hope it all works out okay with minimal economic pain for you. Even the doc I know living on a $2500/month disability benefit is very glad to have it!
No, you cannot deduct premiums as an S Corp. Trust me, I looked into it. MassMutual gives a good explanation here on page 5. Basically the S Corp deducts it but then it gets added back into the 2%+ owner’s income. It is also similarly difficult for a partnership or sole proprietorship.
https://www.massmutual.com/efiles/di/pdfs/di90032.pdf
I actually would PREFER to pay pre-tax. The reasons why are:
# 1 The premium is guaranteed, the benefit is not
# 2 Your income after disability is almost surely lower, so the benefit will be taxed at a lower rate than the premium.
Naturally, that means you need to buy MORE DI than you otherwise would, but I think you’d still come out ahead on average unless you were already buying the max they allowed you to buy.
This guest post will also give you a better understanding of what you can and cannot do in terms of deducting your disability insurance premiums.
https://passiveincomemd.com/can-you-deduct-the-premium-payments-for-your-personal-disability-insurance-policy/
Should doctors self insure for disability and life once they hit FIRE?
Yes.
I wouldn’t do it the second you hit your FI number, personally. I’ve thought about the (highly unlikely) but possible scenario that you hit FI, drop your policy, then become fully disabled and need in home care, wheelchair, etc, the whole nine yards. You may have been FI, but now after a six figure remodel of your home to make it wheel chair accessible, full time nursing care, medications, etc your new monthly expenses are 3x what they were when you hit your FI number and now you don’t have any income.
Maybe I’m just too conservative in planning, but I’d definitely wait until I have a solid buffer beyond FI before dropping disability insurance.
The market may go down too. A buffer is wise. But that buffer tends to grow very quickly once you hit FI. We’re only talking a year or two usually.
Many make the mistake of defining their number with no margin for unexpected higher expenses. If their spending perfectly matches projections and they have been conservative in their withdrawal rate, then they are fine. A 10% increase in costs will compound over time and leave them far underwater.
Not only for the case of a disability that increases costs, one should plan for annual expenses well above what you think you will spend. Then you can be surprised by the future and still be OK.
Hello all – 29 year old male Gastroenterologist here. I’m almost finished my residency and just began shopping for disability insurance. I️ have spoken to 2 agents. The first recommended Guardian because of their definition of disability. The other presented me with the pricing for all 6 of the carriers including a Guardian quote that was similar to the one that I️ was presented with from the other agent. During my discussion with the second agent and after going through each of the policies, she recommended a policy with Principal. This was after I️ decided that I️ was not concerned with the difference between the BU Rider and the FIO’s that I️ could have with Guardian or MassMutual. The difference in cost between the Guardian policy and the Principal policy is about $50-60/mo, Principal being less than Guardian.
My question is, is Guardian’s Definition of Disability that much better than all of the other carriers? The agent pushing the Guardian policy said that he wouldn’t even think of selling someone in my specialty a policy from another carrier since I’ll be performing invasive specialties, and that Guardian’s policy and definition was built exactly for someone like me. The other agent mentioned that the way that Guardian will determine me totally disabled is the same way that all of the carriers will determine me to be disabled. The example she provided was that if 70% of my duties involved performing invasive procedures, that all of the carriers would determine me totally disabled if I️ could not perform these procedures due to a disability, even if I️ could still do, and was doing my diagnostic responsibilities.
Can someone shed some light on this?
I like the second agent’s process much better. I had a policy from the Standard, but I once shopped it out and if I were buying a new one at that point, I would have gotten one from principal. So no, I don’t think “Guardian is the only way to go.”
The “Big 5” (or 6) policies are all great policies with strong definitions.
I bought Mass Mutual disability insurance during EM residency (2019) that defines own occupation as what you are doing when you are injured, but does not have specialty specific language. Is it worth buying a new policy that specifies own specialty? MassMu says they look at CPT codes at time of injury to determine occupation so it isn’t necessary to have it specify specialty language. Premiums would be more than double, ~350/mo vs ~800/mo.
If it’s the same, why are they selling own specialty separately? That’s weird. Or is it another company? Or just more because you’re older/sicker now? At any rate, this is a discussion worth having with one of our recommended independent agents:
https://www.whitecoatinvestor.com/websites-2/insurance/
They eat, drink, and breathe this stuff all day and will gladly give you an honest opinion of whether it’s really worth paying twice as much. I bet the answer will be no.
Part of the difference is that I would no longer get the residency discount. But that doesn’t account for why it is more than double. And that is for all of the big companies, not just Mass Mutual. I am only 3 years older, same level of health. I have asked several agents, I am getting different answers on what I should do :/ … Thanks for your input
If your policy includes the “Own-Occupation” Rider, you are in good shape. It just does not include “medical specialty” language (this is nothing that is sold but in the contract language). Any claim is administered the same way as other carriers.
From the premium difference and short period of time you own the policy, I also suspect you have unisex rates and will not do better elsewhere.
Great thread! I left clinical medicine 10 years ago after being diagnoses with MS and went out on my employer’s “own occ” LTD policy since I could no longer do procedures and was deemed totally disabled. Six months after my diagnosis I negotiated a non-clinical administrative role with the same employer. Due to the new progression of my autoimmune disease, I now am unable to work and my employer has changed to a new policy for faculty. I am in the process of applying for SSDI and I am trying to navigate the new LTD policy that covers my administrative job and my existing group LTD policy, which covered my clinical practice and has paid for the past 10 years due to me making a lot less administratively than clinically. My main question is how will the 2 LTD group policies determine benefits?
Here is the verbiage from my new LTD policy I am currently filing a claim with – Other Income Benefits include: any proceeds payable under any franchise or group insurance or similar plan. If other insurance applies to the same claim for Disability, and contains the same or similar provision for reduction because of other insurance, we will pay for our pro rata share of the total claim. “Pro rata share” means the proportion of the total benefit that the amount payable under one policy, without other insurance, bears to the total benefits under all such policies.
Best to discuss with an agent or attorney, but sounds to me like you won’t be getting the full benefit from both policies to me.