By Thomas Lloyd
The most important first step any physician must take when beginning the process of selecting an individual disability insurance policy is educating themselves about the various inherent differences between each contract. Unlike term life insurance, which has a few obvious variables in which to analyze, disability insurance contracts, even within the same company, can have significant differences in how they pay you for a claim. Most reputable contracts will offer “own occupation” definitions of disability which pay a claim if you cannot work in your specific occupation – not just any occupation. However, not all own-occupation definitions are the same, and understanding the subtle yet important differences between each contract is critical to selecting the correct policy as a physician. By outlining the most common types of own-occupation definitions below, this should aid in the education process for selecting the most appropriate disability insurance policy.
For convenience, all types of own-occupation definitions outlined below are in order from the most to least comprehensive in nature. A clear relationship exists between the price of each contract and its definition. Disability insurance is a product which clearly follows the mantra that “you get what you pay for.” The better the definition of own-occupation, the more expensive the policy will be. Selecting which definition will provide the right fit comes down to an self-analysis of what your own level of risk tolerance is.
The most complete definition of own-occupation coverage on the market for physicians is called “true own-occupation” with included medical specialty protection language. Such a definition means that, because of a sickness or injury, you are not able to perform the material and substantial duties of your medical specialty (your occupation is the one in which you are engaged in at the time you suffer an injury or sickness). When you are disabled and receiving a benefit, you are still allowed to work and earn an income in another medical specialty as long as it’s not your original specialty. Furthermore, a few contracts will even offer sub-specialty protection allowing for designation of a few select procedures. This is very important because it allows physicians the choice of going back to work in the medical field and earning an income without jeopardizing the loss of their benefit from the insurance company. A typical example would be a cardiologist with invasive duties suffering an injury or sickness which prevents him or her from performing a select few surgical procedures imperative to their job. This definition would continue to consider them disabled even if they decided to practice in internal medicine and earn additional income. The amount of income earned from a physician in internal medicine would not affect their benefit.
The second choice available is a true own-occupation definition without medical specialty protection language. This contract shares the same language listed above without the medical specialty designation. This definition would pay a benefit if a sickness or injury prevented the proposed insured from working in their own-occupation as a physician. It would continue to pay the benefit if that individual chose to work in another profession outside of medical field (i.e. consulting, teaching, etc.) and the claim amount would not be reduced. However, it would not allow the choice of working as a physician in another specialty. Let’s use the same example above with the cardiologist. Under this definition, the policy would not allow the proposed insured the choice of receiving a benefit if they decided to start working again in the medical field (as a doctor in internal medicine). Since the policy language does not separate the occupation with medical specialty, the individual would be considered a “physician” and not a cardiologist in the eyes of the insurance company.
The third choice available is a “trans-own-occupation” definition. This form of coverage was created to help bridge the gap between pure own-occupation protection contracts and those with modified own-occupation definitions described below. This definition does not have medical specialty language, but will pay a benefit in the event a person cannot perform their duties as a physician (or other primary occupation). It will also continue to pay a benefit if that person decides to work in another profession, but will begin limiting that disability benefit if that individual’s new profession income, coupled with the benefit, adds up to more than their pre-disability income.
This concept is best understood through an example. A radiologist making $250,000 becomes disabled and goes on claim – receiving $10,000 a month for a benefit. After not working for a period of two years, this individual decides to accept a position working as a consultant for a drug company and is given a salary of $200,000. Consequently, this means this person now is going to make $120,000 from their disability policy and $200,000 from this new job, totaling $320,000 in annual income – more than their previous salary as a radiologist. In this case, since the consultant salary oversteps the pre-disability income figure by $70,000, the disability benefit will be reduced to level out the total income equal $250,000. In most pure own occupation contracts, this reduction would not occur.
The fourth choice available, and probably the most common definition found, is a modified own-occupation definition of disability. Such contracts would pay a benefit if the disabled person could not perform their specific occupational duties (as a physician) but would not continue to pay if that individual chose to be gainfully employed in another field. In other words, a benefit would only be paid if that person never went back to work again – in any profession.
The fifth choice available, and one that most employer-sponsored group plans utilize, is an adjustable modified own-occupation to gainful occupational definition. In such a plan, a person would be provided with a modified own-occupation definition of protection for the first two or five years of disability, but thereafter the definition would switch over to a gainful occupation. A gainful occupation definition means a sickness or disability must prevent a person from working in any occupation they are qualified to work in – not just their specific occupation. This means that the insurance company can revisit a person’s claim after that modified own-occupation period ends to see if that sickness or disability prevents them from working in any occupation – not just their own.
These broad differences between own-occupation definitions comprise only a small portion of options separating disability insurance contracts in today’s market. They do, however, outline the tremendous differences available for prospective buyers. The most prudent choice of which contract to purchase should be made once a clear understanding of the contract language has been made. Most physicians want to ensure protection of their training and education in the medical field by obtaining a policy that has a pure own-occupation definition with medical specialty language, but other physicians sometimes may not.
Make certain that, when comparing different forms of coverage, you comparing “apples to apples” with contracts that share the same definitions and contract structure. This will provide an accurate measure of competitive contracts vs. different contracts. Any pure own-occupation policy will be more expensive than a modified own-occupation policy because they are completely different policies. Finding the answers to such questions will ensure a proper selection is made for protection that is the single most important block of protection in your financial picture.
Thomas Lloyd is a financial representative specializing in disability insurance with the Guardian Disability Insurance Brokerage in Rockville, MD.