Helping Clients Through The Thickets Of The Own-Occ Definition

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 .