Disability Insurance - Comparing Definitions of Disability

by Joe Hall

When analyzing your disability insurance needs it's very important to understand the fine print of your contract. Unlike life insurance there is much more grey area surrounding what qualifies for a claim.

The definition of disability used in a disability contract can have a direct impact on the insureds ability to collect when he/she needs the money most.

Below are three definitions of disabilities used in most injury and illness insurance contracts.

Any Occupation

Under this definition, total disability means the inability to work at any occupation. There fore if you are computer consultant and your disability prevents you from performing your regular occupation duties but you can still gainfully work as checkout clerk you will not receive a cent.

Regular Occupation

Under this definition, total disability means the inability to work at your regular occupation do to an injury or an illness.

Own Occupation

Is the gold standard definition - Under this definition, total disability is also defined as the inability to work at your regular occupation regardless of whether you work in another gainful occupation?

All the things being equal the better the definition of disability the higher the monthly premium. This makes sense because the insurance company has an increased likelihood of paying out a claim. The problem with the Any Occupation definition found in many group disability plans is it leaves a tremendous amount of grey area surrounding the insured's ability to find employment at another occupation at the time of claim.

The upgrade from Any Occupation to Regular Occupation provides significant value. However, the upgrade from Regular Occupation to Own Occupation can be questionable in certain instances. An Own Occupation definition provides the most value in a highly skilled occupation such as a surgeon but less value for occupations such as an office manager. The reason for this is a surgeon could easily have an injury to his/her hands which prevents them from being a surgeon but allows he/she to work as a family physician. In this instance the insured would continue to receive his/her disability benefits even though he/she is gainfully employed as a family physician. The likelihood of an office manager or even a lawyer collecting under the Own Occupation definition is significantly lower.

The "own occupation" definition is not cheap usually ranging in an extra cost of 20% to 30% of the base premium. e.g. On a policy with $1,500 a year premium the own occupation can cost an additional $300 to $450 a year.