Disability Diagnostic Series: Transitional Occupation Rider
By D.K. Unger
Disclaimer: This is not an endorsement or denouncement of any company that offers disability insurance.
In California, the transitional occupation rider modifies the definition of disability to allow the insured to continue to receive benefits up to 100% of prior earnings (not to exceed the stipulated monthly benefit) even though working in another occupation. On the surface, this definition of disability seems more than sufficient. After all, isn’t the purpose of disability insurance to insure one’s income? If one is able to earn more than they did before in another occupation, then there is no more economic loss, right?
While the above points are correct, it is important to note that there are possible shortcomings to the transitional occupation definition of disability.
- The benefit is reduced by other disability coverage. This includes individual, association or group policies. It also includes plans that provide sick pay, salary continuation, salary replacement, disability income, disability retirement, retirement, worker’s compensation monthly benefits or settlement received in lieu of monthly benefits. For instance, let’s say an Anesthesiologist has a $10,000/month individual policy with a transitional occupation definition of disability. They also have a group policy that provides $10,000 a month of coverage. The Anesthesiologist is earning $20,000/month. While on claim, the Anesthesiologist works in another occupation earning $7,000/month and receives $10,000/month from the group policy. In that scenario, the individual policy with the transitional occupation rider definition of disability would only pay $3,000 out of the $10,000. In effect, the Anesthesiologist is paying for a $10,000/month policy when he/she would only be eligible for a fraction of that.
- In order to receive the benefit, the insured has to continuously provide income documentation to the company for the entire claim period. This could be a hassle for someone who is disabled and already has enough to be concerned with.
With all that said, the transitional occupation rider definition of disability can be adequate when true own occupation coverage is priced out of the proposed insured’s budget. We recommend that invasive physicians obtain true own occupation protection because they are most likely to suffer a disability that prevents them from practicing their specialty but still allows them to practice a different one.
Ultimately, it is about striking a balance between the robustness of the policy and the cost of it.
Having an independent agent help a client understand and navigate policy definitions and provisions like these is critical in achieving the optimal outcome of establishing comprehensive and cost-effective disability protection.