From the perspective of a disability insurance claims consultant and an expert witness for inappropriately denied claims, it seems as if the number of denied claims has increased over the past decade. It seems that one of the biggest reasons for claim denial is that the claimant is not satisfying or understanding the various “own occupation” definitions of “total disability.”
Basically, there are three “own-occ” definitions for total disability.
One definition is referred to as a “pure own-occ” because it contains no splits (no “thereafter” wording) and goes for the full benefit period.
The other two are split definitions. These versions of the definition do contain that claim killer word “thereafter.” They are usually “own-occ” initially and then change to a less liberal definition at some point–usually after 5 years and for the remainder of the benefit period.
The policy’s definition of total disability usually initially reads, “Unable to do all of the substantial and material duties of your occupation (or occupations).”
This is a warning to those who would like to believe that the “own-occ” definition offers a free ride to retirement city. That might be so if the claimant has only one major duty, but what happens if the claimant has more than one?
Consider scenarios for the following claimants:
o They can do some, but not all of their duties.
o They are retired and not yet 65.
o Their occupation is different at the time of disability than at the time of the application.
o During a residual claim, income drops because of economic reasons rather than medical reasons.
Does that mean these hypothetical claimants won’t be paid?
Here are some possibilities:
? Pure Own Occupation Definition (no split)
“Own-occupation for the full benefit period” is the best of the 3 types of definitions. It allows the claimant to be paid the full monthly benefit amount, for the full benefit period, even though the claimant is working in an unrelated occupation/duty. (Note: The definition looks at the occupation(s) being performed at the time of claim, not at time of application!) This definition is available from most carriers and is offered primarily to white-collar workers, especially those who have a large investment in their education or some other criteria the carrier has set forth based on claims experience and, to some extent, the competition.
The exception, due to claims experience, to the “large education investment” criteria for the pure own-occ definition, goes to the medical community. At the moment, surgeons and practitioners of some other disciplines are limited to one of the split definitions. Despite this limitation, these and some other types of medical doctors could get a specialty letter, in which their definition of total disability is enhanced to cover their AMA recognized specialty.
Under the dual occupation/duty scenario, the claimants must be disabled from both occupations in order to collect under total disability. However, when this condition occurs and if the claimants have a residual benefit option as part of their coverage and have at least a 20% loss of income, they should then be able to collect some monthly benefit amount under this option. Most residual benefit contract language also includes benefits for partial disability, which only requires a loss of duties (as opposed to a loss of income) to trigger benefits and pays a minimum of 50% for the first 6 months.
Under a dual occupation/duty scenario, in which the claimant doesn’t qualify for total, one would believe that the residual benefits would take care of things. Well, yes it will; however, as previously mentioned it would, but possibly only for 6 months. What then happens after 6 months if their income hasn’t dropped? This might occur if the claimant is able to compensate lost income from one duty to the remaining duty, which then results in no loss of income.
Remember, after the first 6 months, in order to collect residual benefits, there must be a loss of income. The point is that there could be some scenarios, whereby the claimant doesn’t get paid after 6 months.
? Own Occupation Split Definitions
There are two basic types of own-occ split definitions. One type involves “own occupation” for a period of time, which then changes to “not gainfully employed elsewhere.” A policy with this definition initially pays whether the insured is working or not. It continues to pay for the rest of the benefit period if the insured can’t do the duties of his or her occupation and is not working elsewhere. It becomes the claimant’s choice whether or not to work. Again, residual can be a factor.
The other type of split definition involves “own occupation” for a period of time, which then changes to “unable to work elsewhere.” This split definition gives a true “own-occ” for a period of time, usually for 5 years, then changes to “unable to work elsewhere” by reason of education, training and experience. Some carriers include prior income as another caveat. This type of split definition gives the carrier more control over the claim by challenging the claimant’s ability to work. As above, residual can be a factor.
? Loss of Earnings Definition (non own-occ)
The “loss of earnings” definition has been around for a long time. Recently, a few more carriers have chosen to stipulate this definition in lieu of any of the own-occ definitions. A “loss-of-earnings” definition may be more appropriate and less expensive given the dual occupation/duty comments above whereby your prospect may have two known unrelated occupations.
This definition works the same way as a residual (proportionate) benefit. This means that an insured who has a 30% loss in income during a covered disability receives 30% of the monthly benefit (partial notwithstanding). This type of policy pays proportionately.
Please be aware that since participation tables only allow 30% to 60% of earned income to be covered, depending on the insured’s income, occupation and when the policy was issued, the insured starts off with an initial 40% to 70% monthly benefit amount shortfall. As a result, the “own-occ” definition then becomes even more desirable. It allows the insured to earn additional income as long as it comes from another occupation/duty.
Higher issue limits are available if the employer pays the premium with these benefits being taxable, in contrast to tax-free benefits when the employee pays the premium. There are some “tricks of the trade” that let claimants have it both ways.
In conclusion, the “own-occ” definition is more expensive than a “loss-of-earnings” definition, but on the other hand, it can make the claim underwriting process somewhat easier since it may not require providing documentation to prove monthly loss of income. That’s not to say that the claims department won’t ask for tax returns and the like. The rest is up to the agent to point out the possible land mines and to eliminate unreasonable expectations.
Larry Schneider is the owner of Disability Insurance Resource Center, Albuquerque, N.M. He can be reached at .