Subject: Insurance - Disability

Last-Revised: 21 Feb 2016
Contributed-By: Richard Reich

This article explains disabilty insurance, the differences between own-occupation and any-occupation insurance policies, and employer long-term disability plans.

Disability insurance protects a person's ability to earn an income in case of injury or sickness that prevents the person from performing basic occupational functions. Disability insurance isn't always on the list of priorities, but it's a crucial part of planning for the future. While most people invest in a life insurance policy, many fail to consider the likelihood of an accident preventing them from returning to work.

Disability insurance usually falls into one of two categories: "own occupation" or "any occupation." The difference between the two is based on how the insurance company defines disability. Just as the name implies, own-occupation disability insurance defines disability as being unable to perform the daily requirements of the policyholder's chosen occupation. In contrast, any-occupation disability insurance defines disability as being unable to perform the daily requirements of any occupation at all, taking into account the policyholder's work experience, age, and education.

Own Occupation Disability Insurance

Own occupation disability insurance policies are often recommended for highly skilled professionals such as surgeons, CEOs, engineers and lawyers. Something as a minor as a hand injury could potentially prevent a professional from participating in his/her particular line of work, thus costing hundreds of thousands of dollars in lost income. For example, if a surgeon cuts his hand and cannot operate on patients, the person will qualify as disabled under an own-occupation policy despite being able to perform a variety of other jobs. Because own-occupation policyholders tend to be highly skilled, they are more likely to receive a high rate of pay. An own-occupation disability insurance policy is designed to help professionals maintain their current salaries, thus yielding a high payout.

Insurance companies are very specific as to how they define the occupation of the insured person. This begins with the application process, where the applicant lists the specific duties/tasks of the chosen occupation, along with the percentage of time each one requires. The insurance company also has experience with what it means to be in a particular profession and uses these standards to help determine whether or not the policyholder is considered disabled.

Any Occupation Disability Insurance

An any-occupation policy defines disability as being unable to perform the duties required by any occupation. The insurance company will look at a policyholder's work history, average earnings, and education to determine if the person is eligible for occupations other than the chosen occupation. For instance, if a surgeon cuts his hand and cannot operate on patients, the surgeon will not receive benefits under any-occupation disability insurance because he is still physically and mentally fit to engage in many other occupations, including part-time work.

For any-occupation policies, insurance companies will determine if the policyholder qualifies for benefits based on whether or not they can still find gainful employment. Most insurers will define the term "gainful employment" as an occupation in which the policyholder can expect to make at least 60 percent of his/her previous monthly earnings. The insurance company will also look at the job market in the policyholder's geographical region. Thus, the policyholder will only receive benefits if there are no suitable employment opportunities in their area that would provide at least 60 percent of the previous income.

Own Occupation vs. Any Occupation Disability Insurance

In general, own-occupation disability insurance will do more than any-occupation disability insurance to protect a skilled professional's income by defining disability based on the requirements of the occupation. In most cases, own-occupation policies come with higher premiums compared to any-occupation plicies because they provide policyholders with more coverage. When choosing between own-occupation and any-occupation disability insurance, applicants should have an understanding of how each policy defines disability and the amount of coverage they would need to maintain their current income.

Employer-Provided Disability Insurance

Many employees have access to disability insurance as a part of their benefits package at work. Disability insurance protects a portion of an employee’s income if the employee becomes injured or ill, and cannot perform the duties essential to the job. Long-term disability usually recoups about 60% of an employee’s income from the start of the disability to the age of retirement. According to the US Department of Labor, just under half of all workers in the private sector have access to some form of disability insurance through their jobs. Although disability insurance is fairly common in the workplace, many employees do not understand the full range of benefits their policies provide.

Here is a list of need-to-know information for employees with access to some form of disability insurance through their job, contrasting this group benefit with insurance purchased individually.

  • Most employers offer their employees group disability insurance. Group policies often provide modified own-occupation coverage.
  • Group plans are not portable, meaning that the employee would lose their benefits if they left their job. In contrast, individual disability insurance plans are portable. This means that if an employee leaves their job, the plan will go with them, no matter where they work.
  • Group plans do not have a recovery benefit, which will pay a partial benefit if the employee loses a portion of their income due to disability.
  • Group policies typically pay employees 50 – 60% of their base pay. This does not typically account for employee bonuses or commissions.
  • Most group policies don’t offer inflation protection, meaning that the benefit payout does not change with the employee’s cost of living.
  • Most group plans are not non-cancellable/guaranteed renewable. This means that the employer can cancel their employee’s benefits as they see fit.
  • If a group policy is fully or partially paid for by the employer, the benefits will be fully or partially taxable. Individual disability benefits are not taxable.

About The Author: Richard Reich is President of Intramark Insurance Services, and a nationally licensed broker of life and disability insurance policies. He has more than 25 years of experience in the insurance industry. Visit his web site at

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