Own Occupation Disability Insurance — A Key for Doctors

There are several types of "own-occupation" policies. You probably need one of them, but which one? True, transitional, or modified? Here's what you need to know. The post Own Occupation Disability Insurance — A Key for Doctors appeared first on The White Coat Investor - Investing & Personal Finance for Doctors.

Own Occupation Disability Insurance — A Key for Doctors

By Dr. Jim 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. The White Coat Investor often gets inquiries from readers about just how important “own occupation” is and whether it is really necessary.

Let's get into it today and answer some of those questions.

 

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 you can't perform in 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 and 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.

More information here:

People Aren’t Buying Disability Insurance, But They Should

How Much Disability Insurance Should You Buy?

 

What Definition of Disability Is Important for Physicians?

You want own occupation, specialty specific coverage. 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 companies, but you get what you pay for.

We asked Travis Christy, DIA, WCI's in-house insurance guru and COO of White Coat Insurance Services, to address the question of just how important own occupation is and whether it is really necessary.

Here's what he wrote:

Q. How important are own occupation riders for non-procedural fields, and what is the role of transitional own occupation riders?

A. “This is all about how much control does a physician want at claim time. Regardless of whether a physician performs procedures, having the “true” own occupation rider on a disability insurance policy is something to consider. This rider allows more flexibility and if they become unable to perform the specific tasks of their specialty due to illness or injury, they can still receive their benefits. Without this occupation-specific coverage, an insurance company could decide that the physician is capable of working in another, possibly less satisfying or lower-paying, role, and thus deny their claim. It depends on what the definition of disability is on the contract. A “true” own occupation rider puts the control back in the hands of the physician, allowing them to receive benefits while choosing whether to pursue another medical role or even a different field altogether.

This rider is particularly valuable because non-procedural physicians often perform tasks that are cognitively demanding and tailored to their specialized training. For example, a psychiatrist who loses the ability to concentrate or an internist who can no longer manage complex patient cases effectively may not be able to continue in their role. With a “true” own occupation rider, they are protected financially, and they can focus on recovery. Without this, the physician would potentially be at the mercy of the insurance company deciding for them if they are able to do any other job they may not be passionate doing but something they can do based on their education, training, and experience: “Any Occupation Definition of Disability.”

The transitional own occupation rider offers a similar but slightly different kind of protection. The definition is designed for situations where a physician can’t work in their exact specialty but decide to work in another job, even if it's in a different field. This rider covers the gap between their previous income and what they can earn in their new role, up to 100% of their original earnings. Essentially, it helps prevent significant financial loss while adapting to a new professional path.

For example, if a neurologist becomes unable to practice due to a physical disability but can still teach or consult, a transitional own occupation rider will help maintain their income level. It prevents them from suffering a severe financial setback while they find their footing in a different role. However, it’s worth noting that while a “true” own occupation rider allows for potentially unlimited earnings in another job without reducing benefits, a transitional own occupation rider adjusts benefits if the physician’s new earnings exceed their previous income. This means if they earn more in their new role, the insurance benefits will decrease accordingly.

Modified own occupation disability insurance is not going to offer the same level of protection as transitional or true own occupation coverage. With modified own occupation coverage, a physician can collect their full monthly benefits if they become unable to perform the duties of their medical occupation. However, this benefit is contingent on the physician not working. For instance, if a cardiologist can no longer practice due to a disability but chooses to work in their field or a different field—perhaps as a medical consultant or in an entirely non-medical job—they would forfeit their disability benefits. This restriction makes modified own occupation riders less flexible than own occupation policies.

Another agent, 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.

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.”

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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 [and] 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.”

More information here:

Doctors Who Become Disabled

 

Medical Specific Own Occupation

Guardian Life Insurance Company of America offers an “Enhanced Medical Specialty Own Occupation” definition of disability. This enhanced coverage is only available to physicians (MDs and DOs). Under this policy, if a physician loses 50% or more of their income because they can't perform surgical procedures or do hands-on patient care due to illness or injury, they are eligible to receive full disability benefits—even if they can still work in a different capacity in their occupation. It's good to note when a physician buys a Guardian policy with true own occupation, they automatically will get the Enhanced Medical Specialty Own Occupation definition of disability. Here are examples from one of their brochures:

 

 

What About Northwestern Mutual?

In the last few years, Northwestern Mutual has changed its medical definition of disability. The new “Medical True Own Occupation” offers an upgrade from the old “Medical Own Occupation Definition,” which restricted benefits if the physician was working in a different job while disabled. The newer definition allows full benefits if the physician is totally disabled and cannot perform their primary medical duties, even if they choose to work in another field. This newer definition brings Northwestern Mutual closer to competitors that have been offering “True Own Occupation/Own Occupation” definitions of disability for several years.

While Northwestern Mutual's introduction of the “Medical True Own Occupation” definition represents an improvement in its disability insurance offerings, some limitations may still exist. Here's how the definition reads and an example:

  • Medical True Own Occupation: If a medical professional is unable to perform the substantial and material duties of their regular occupation which generate 50% or more of their direct patient care billings (e.g., procedural duties), but they are still able to perform one or more of the other substantial and material duties of their regular occupation (e.g., clinical duties), they can choose not to work and still be eligible to receive their full monthly benefit.
  • Example: If a medical professional is totally disabled, unable to perform the substantial and material duties of their regular occupation, and they choose to work in an occupation other than the regular occupation at the time of onset of disability, they will be eligible to receive their full monthly benefit regardless of the income they earn from working in the new occupation.

But there is a debate with Northwestern Mutual's Medical True Own Occupation definition. Based on the definition and example, what would happen in a claims scenario if the doctor could keep doing other parts of their specialty or job and if they would qualify for total disability or partial disability benefits. For example, let's say a plastic surgeon making 65% of their income from procedures and 35% from other duties. If they find themselves unable to perform surgeries but can still do clinical duties, and choose to continue working in their regular occupation or current job, there is a possibility that Northwestern's revised Medical True Own Occupation Definition of disability might classify them as partially disabled.

own occupation disability insurance

 

The Bottom Line

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.

 

Obtaining quality disability insurance is a must for any physician, so you can be sure to protect your hard-earned income. Get a quote from one of our recommended insurance agents and cross this task off your to-do list today!

 

What do you think? Is your disability policy true own occupation, modified own occupation, or something else? Do you think it's adequate for you? Why or why not? Comment below!

[This updated post was originally published in 2014.]

The post Own Occupation Disability Insurance — A Key for Doctors appeared first on The White Coat Investor - Investing & Personal Finance for Doctors.