Disability Insurance

The short answer for physicians and dentists is a qualified yes, in contrast to my short answer in Part I of this blog which was usually not.

The different definitions of disability were reviewed in the Part I of this blog and I will refer you there if you are unsure of the different definitions, but I will simply restate that a true own occupation definition allows one to be on claim when disabled from one’s own occupation, even if working in another occupation. For example, the surgeon with severe carpal tunnel syndrome goes on claim and then becomes a financial planner—and even if making a million dollars in the new career, he or she would continue to receive full benefits if unable to work as a surgeon if he or she owned a disability policy with a true own occupation definition.

For IT workers, business owners and executives on the other hand, I argued that “own occupation and not working” (otherwise known as “modified own occ”) was usually the sweet spot—and that it did not usually make sense to pay more for a definition that will almost never be used. Here I will argue that usually a “true own occupation” definition is usually worth the extra money for most physicians and dentists.

Why the difference? Three reasons:

Reason One: While executives, IT workers and small business owners almost never become disabled and then return to work in a different occupation (they almost always come back to their old job or to a very similar job), physicians and dentists do, on occasion, become disabled from their own occupation and later return to work in a different occupation—one that requires different physical and/or mental abilities.

The job duties associated with the typical office worker these days, including IT experts, executives and business owners who are in primarily administrative and marketing roles, require similar sorts of physical and mental abilities. This is not to say that the average office worker and the CEO have the same skill set, but it is to say that disabilities that are likely to befall them are similar. Many people think accidents are the most common cause of disability, but musculoskeletal, nervous system conditions, cancer, strokes and heart attacks are much more likely to be the culprits than accidents¹.

So when an office worker whose job requires them to sit in front of a computer, talk on the phone and maybe make presentation to a group becomes disabled, if they recover enough to return to work they usually come back to the same job. The causes of disability rarely prevent them from being able to do their own job while also allowing them to be functional if a different job. There are exceptions of course, but claims statistics bear this out. If someone in one of these categories returns to work, it is almost always a return to a previous career.

Physicians and dentists, however, have duties that require a degree of mental acuity and perhaps even more importantly specific motor skills, dexterity, and stamina that are not nearly as important to the typical office worker in the modern age.

Imagine the duties of a dentist or a surgeon, for example. They are on their feet all day, performing services that often require very fine motor skills and exceptional diagnostic skills. While a back problem or carpal tunnel syndrome can disable an office worker, we can imagine adjustments to the physical environment that could allow them to continue in their jobs, eg a desk that raises and lowers may make it possible for someone with a severe lower back issues to make it through the day by changing positions. In any event, if they cannot perform their own job, they rarely find another occupation that they can do.

A surgeon or a dentist typically does not have an option like an adjustable desk that will allow them to see patients in surgery or for a root canal, but an adjustable desk might allow them to work in an office setting. In fact, they are more vulnerable to a number of potentially disabling illnesses that might prevent them from performing their duties as a dentist or a surgeon but which might not prevent them from working in an office.

The risk of making a diagnostic or prescription error also carriers with it consequences that are potentially more severe than most jobs in the modern economy, so they may also be more vulnerable to mental and nervous disorders. Statistics on claims bear out the fact that these occupations are more likely to make use of a true own occupation definition than the average office worker.

Reason Two: While reason one lays out the logic of paying more for the additional protection of a true own occupation definition, the emotional response of the client is typically even more important. Disability insurance really offers two benefits. The obvious one is that if one becomes disabled one has a source of income even if unable to work. The second benefit comes before becoming disabled—it is the comfort of knowing that your income is protected in the event of a disability. We tend to focus on the first reason, but I believe that physicians especially, but not solely, are sensitive to this.

Many potential clients, especially if young, carry the belief “that it will happen to me.” Physicians on the other hand, and to a lesser extent dentists, see patients everyday who are ill or who have significant issues that can and do disable them. In addition, physicians and dentists have spent years in school and hundreds of thousands of dollars to get through training, typically leaving them with significant student loans. Even a short-term disability can be financially disastrous for them. So if the typical non-medical potential client never thinks about getting disabled, physicians in particular want the peace of mind that comes with knowing that they are protected and even more so that they have the best protection that money can buy. Having a DI policy with a true own occupation definition is a big part of providing this peace of mind for them.

Reason Three: If you do not sell them a true own occupation definition, someone else will come along and replace it and say bad things about you in the process. This reason might sound like you are simply protecting yourself (and your commission), but, while that is true, you are also saving your client from having to go through the sale all over again. You might also be saving them money in the long run if you save them from their policy replaced years down the road.

I would argue that there are specialties and ages where the added cost of a true own occupation definition might not make sense. Take for example a female psychiatrist in her late 40’s making about $200k a year. Psychiatry does not require the fine motor skills or physical stamina of being a surgeon or anesthesiologist (by contrast), and the odds of that psychiatrist being disabled from her job and going into another one is actually very, very small. For her, paying extra probably does not make sense, especially in her 40’s or 50’s. But if you sell her a policy that is “own occupation and not working” (like I proposed should be the default for most office workers), be prepared to have the next financial planner or insurance agent tell her she is not adequately protected. In this case, I would still make the recommendation not to pay the additional premium (which will already be quite high because of her age, gender and occupation), but I would do my best to educate her as to why not.

If I were to meet that same female physician when she is graduating from residency at say age 32, I would still provide her with all of the options but would be happy to let her choose the stronger, more expensive option. In this case the premium difference is not so great and the added protection has some real benefit. It will provide her with the peace of mind that she is buying the best and it will protect from having to go through all of this again when a month later someone else calls and tries to sell her a “better policy.”

Unlike most people who have very little concept of the need for a disability insurance policy, physicians are the exception in our field. They typically have some sort of class or workshop where they are told to buy disability insurance. Often older physicians will also even tell them that they have to have a true own occupation definition and may even recommend a specific carrier. Logic may lead you as their advisor to want to save them some money (since even for physicians and dentists, and especially for certain lower risk specialties, true own occupation claims are the exception not the rule) and suggest that they save the additional premium spent on a true own occ rider. Certainly all potential clients should be given all of the options and all of them should be discussed thoroughly (within reason—too much information can overload any client and lead them to withdraw), but it is not at all clear to me that you are doing them a favor by suggesting a lesser policy, even to the psychiatrist in my example. Especially if they are early in their career. If they buy the less expensive version upon graduating and then 10 years later they are talked into replacing it with a “better policy” they will end up paying more over the life of the policy.

With surgeons, ER physicians, anesthesiologists, and dentists it is even more clear cut, given their elevated risk to a range of disabilities the extra money required for a true own occupation definition is money is well spent.

¹⁾ http://www.lifehappens.org/blog/lets-get-the-facts-straight-on-disabilities-and-the-need-for-disability-insurance/

The short answer is usually not. If you are insuring a computer programmer, a business owner or an executive, usually an Own Occupation and Not Working is the sweet spot.

One of the most misunderstood and most important aspects of a disability insurance policy is the definition of disability. For those insurance agents and financial planners who have not sold many or any DI policies, usually the one thing they remember from their preparation for the licensing exam is “always recommend an own occupation definition.” If this is the one thing you remember, it’s not bad advice actually, but the reality of what is available and what is best for your client is a bit more complicated.

To review, there are essentially four levels of protection available (you could slice this case into more pieces, but for the sake of simplicity I will touch on four categories).

The weakest level is associated with Social Security Disability Income: The law defines disability as the inability to engage in any substantial gainful activity (SGA) by reason of any medically determinable physical or mental impairment(s) which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months (www.ssa.gov/disability/professionals/bluebook/general-info.htm). We hope your clients never have to prove that they meet this definition—and this by itself is a good reason to sell DI to your clients—to save them from having to prove to the government that they cannot hold any job.

A step up from that is language from Disability Insurance Carriers that reads something like: You are unable to perform the substantial and material duties on any occupation for which you are reasonably qualified by means of your education, training and experience.

Clients in manually intensive or physically challenging careers often end up with a policy with this definition. It might start out with a stronger definition and then switch to this after two or five years. Sometimes it is the best that can be offered, and still it provides far more protection than SSI or workman’s comp.

Your client will have to meet the elimination period associated with the policy (so already much better than SSI), but it leaves a lot of leeway for the carrier to determine what might be a viable alternative if your client cannot perform his or her job and thus we only recommend it when a stronger definition is not available.

If someone has invested in education and time achieving a level of success in an occupation (eg starting a small business), he or she likely will not appreciate being told that they can provide telephone customer support or some other such job in which they have little interest and that will likely not pay them as well. Sometimes saving money by limiting the definition of disability makes sense, but usually in this case it does not. But often there is no other option for those in manually intensive occupations.

Own Occupation definitions offer more protection and generally are preferred when available. Your client will never be required to apply for a job in another field if he or she cannot perform his or her own occupation. A True Own Occupation definition reads something like: You are disabled if you are unable to perform the substantial and material duties of your occupation. Sometimes this definition also defines medical or legal specialties as recognized “occupations.” The key here is that there are no modifying clauses which limit the carrier’s exposure to liability, ie no language that states that you must not be working in another occupation or how much you can make in that new occupation without it affecting your benefit. This definition has come to be the gold standard in the industry and certainly is the definition preferred by physicians (who buy DI more than any other occupations) and by attorneys (more on these in a future blog).

Own Occupation and Not Working definitions add a modifying clause to the true own occ definition listed above stating simply that: …and are not working in another occupation. This clause reduces the carrier’s exposure to liability because they do not have to pay, or perhaps would have to pay less, if the client chooses to work in a different occupation. Such language sounds like it must be good for the client. In fact not having that modification does make it easier for the client to go on claim and to then work in a different occupation and keep receiving the full benefit. Sounds good. But what makes the most sense for your client?

A little more context: Not having that modifying clause of not working in another occupation adds to the cost—typically between 8% and 12% more than without the rider. The only thing that this additional cost buys the client is the ability to work in a different occupation if disabled from his or her own.

The statistical reality is that there are very, very few claims that become true own occ claims, i.e. the client cannot do his or her job but chooses to work in a different occupation (even most physicians who return from a disability go back to their previous specialty).

At most carriers (probably all carriers) they can count on one or perhaps two hands the number of open true own occ claims they have at any one time. And these claims almost never involve executives or small business owners. Most people who go on claim go back to work at some point, but most go back to the same careers/occupations they were in when disabled—this fact is doubly true for small business owners. If their business is still open, they return to it.

If so few claims become true own occ claims, why do the carriers charge so much for it, you might be wondering. Honestly, I think it is overpriced, but the response I have been given by several carriers is that the costs of dealing with true own occ claims is higher: If the true own occ rider is on the policy (a few carriers build it into the policy but that is the exception not the rule), the owner of the policy is more likely to file a claim and is likely to stay on claim much longer if the claim is approved.

Most of the best DI carriers these days offer both a true own occ and an own occ and not working definition to executives and owners of small businesses (not primarily involved in manual labor). A 10% savings may not seem like much if it gives the client more peace of mind. And if it does in fact add peace of mind for the client it is money well spent in my view. But a policy that costs $3,000 a year might save about $300 a year without the true own occ rider. Again this is not a huge amount, but if the client buys that policy at age 37 and holds it for 30 years (or longer), suddenly the $300 a year, plus the opportunity cost of not investing that money becomes more significant.

In sum, for most office workers in the modern US economy, and especially for small business owners, paying extra for a true own occupation definition is not worth the extra money. It is worth the money, in our view, to pay extra to have an own occupation and not working definition.