Our Thinking

Insights to help you protect your career and family.

How Does Your Income Protection Insurance Define “Disability”?

Physician holding hand

Whether you have disability insurance or are still shopping, it’s important to know exactly when and how much the policy will pay. There are significant differences. The main point to consider is how the policy defines “disability.”

“Any Occupation” vs. “Modified Own Occupation” vs. “Own Occupation” 

Any-Occupation Definition

When your policy uses this definition of “disability”, you will qualify for benefits when the elimination period has been satisfied; and if you are unable to work in any field for which you are qualified.

Modified Own-Occupation Definition

This policy pays benefits (when the elimination period has passed) when you are not able to work in your own specialty and are not working in another occupation. Some policies pay residual benefits if you return to work in a medical field other than your specialty. These benefits would help compensate for the loss of income that resulted from doing work that was not as highly compensated as work in your specialty.

True Own-Occupation Definition

A policy with a true own-occupation definition of disability will pay full benefits when the elimination period has passed, as long as you are unable to work in your own specialty, even if you earn income in a related field and suffer no loss of income.

What is an elimination period?

Also called a qualifying period, it is the amount of time between the disabling event and when the insured becomes eligible to receive benefits. Insurers generally offer options— from as little as one month to as long as a year. Two months is a frequent choice. Some policies will not pay benefits unless you do not work during the elimination period.

Let’s explore how these definitions would be applied.

Dr. A. is an ortho surgeon who sustained a hand injury that will require many months of rehabilitation before a return to surgical practice is possible. However, Dr. A. is able to perform some related professional activities. Dr. A. has a disability income protection plan with a six-month elimination period.

If Dr. A’s policy has an any-occupation definition, and the elimination period has passed, Dr. A. will not receive benefits, since they are able to work in a related field.

With a modified own-occupation definition in the policy, Dr. A would begin receiving benefits in Month 7, as long as they were unable to perform the activities required by their specialty, even if they were able to perform related activities.

  • Depending on the terms of the policy, benefits might not be paid if Dr.A. was working in a related field.
  • However, some policies pay residual benefits which are less than the full benefit amount as determined by a formula using the insured’s earnings.

Let’s suppose the policy paid residual benefits. The objective of disability income protection is to replace two-thirds (66.66%) of the insured’s normal income, an amount that would approximate the regular take-home pay.

Before the disabling event, Dr. A. earned $13,500 per month. The policy’s benefit payment was $9.000 per month.

If Dr. A. earned no income, under a modified own occupation policy, the full monthly benefit of $9,000 would be paid until Dr. A. was able to perform surgery again, or until the payment period ended. But if Dr. A. began teaching surgery part-time and earned $4,000 per month, that monthly benefit payment would be reduced to $6,333.

Residual Benefit

Residual benefits are payments made when the disabled person is able to work part-time in activities related to their specialty or in another medical specialty.

Here’s how we figured the residual benefit for Dr. A:

(Loss of Monthly Base Income ÷ Prior Monthly Base Income)  X  Monthly Benefit = Monthly Residual Benefit

Residual Benefit

Now, if Dr. A’s policy had a true own-specialty definition, when the six-month elimination period was up, the policy would pay the full benefit as long as Dr. A was unable to perform surgery, regardless of any income from related activities, such as teaching or consulting.

The goal of the true own-specialty policy is to make income whole when you change specialty or leave the practice of medicine for another field.

But what if . . .

Dr. A. had started teaching at a medical school just four months after the disabling event — two months short of the six-month elimination period. In most cases, no benefits would be paid. There are individually sold policies that would allow this, but they can be hard to find and are expensive.

Had Dr. A. waited until seven or eight months after the disabling incident to begin teaching, full disability payments would have begun and would continue as long as the disability prevented the practice of surgery. Similarly, had Dr. A. selected a two-month elimination period, full disability benefits may be payable when they began teaching four months after the disabling event.

So, what is the best choice?

While the definition of “disability” is one of the most important considerations when shopping for disability income protection, there are many others (such as the length of your elimination period) — and all should be viewed through the lens of your unique situation and needs, as well as your expectations for the future. A specialist in physician disability insurance is a valuable asset. They can help you arrive at a solution that helps you protect yourself and those who depend on you.

Want to know more? Here are suggestions: