Disability Diagnostic Series: Definition of Disability
By D.K. Unger
To begin this new series, I will be looking at the heart of disability insurance contracts, the definition of disability. The definition of disability determines whether your benefit will be received or not. There is no universal definition of disability; it varies with each carrier and contract. Therefore, it is highly prudent to read the definition carefully for the policy you are considering. Disability insurance policies are written on either an individual or group/association basis. Policies written on an individual basis are contracts between you and the insurance company and generally put you in control of the contract whereas group/association policies are contracts written between the employer/association and the insurance company. This effectively means that they are in control of the contract. For this reason, it is highly recommended that you make an individual policy the foundation of your disability coverage portfolio. Group and association policies are designed to supplement individual policies.
DISCLAIMER: Policy provisions and definitions may vary based on the state the policy is issued in. The below represents a general overview.
AN EXAMPLE OF AN ASSOCIATION/GROUP DI POLICY:
For the first 12 months of Supplemental Disability benefits –
1. Due to a medically determinable physical or mental impairment resulting from a bodily Injury or disease, you are completely unable to perform any and every duty pertaining to your own occupation;
2. You are not working at any occupation for wage or profit; and
3. You are under the direct and continuous care of a Physician.
From the 13th month of Supplemental Disability benefits onward –
1. Due to a medically determinable physical or mental impairment resulting from a bodily Injury or disease, you are completely unable to perform the material and substantial duties of any occupation for which you are reasonably fitted by your education, training or experience;
2. You are not working at any occupation for wage or profit; and
3. You are under the direct and continuous care of a Physician.
Notes:
This is a common variation of a group/association policy definition of disability. It creates two separate periods of disability each governed by their own definition of disability. You want to avoid any policy that defines disability in that way. On the surface, the first 12 months seem to use own occupation language. However, this is deceptive because the “any and every duty” and “any occupation for wage or profit” language essentially voids the own occupation language. The 13th month and onward definition contains “any other occupation” language which means that you will receive your disability benefit only if your disability prevents you from being able to work in any occupation. This confers only a weak degree of protection. Also, be aware that many group disability policy benefits are taxable if employer paid and usually only cover base income, which is often-times a small fraction of a physician’s total income. Some association policies also tend to include own occupation language. However, the own occupation language in those policies is typically significantly weakened by their residual/partial provision definition because they will not consider you totally disabled if you are able to return to work part time in any occupation/specialty after a period of total disability.
All of the words I bolded give power to the insurance company to deny a disability claim. You DO NOT want to see them in the definition of disability for any policy you own or are considering purchasing. You especially do not want to see them if you are disabled and reading your policy for the first time.
AN EXAMPLE OF A COMPETITIVE INDIVIDUAL DI POLICY:
“You will be considered totally disabled if, as a result of sickness or injury, you are unable to perform with reasonable continuity the substantial and material acts necessary to pursue your usual occupation in the usual and customary way.
Your usual occupation means the occupation(s) you are actively engaged and regularly performing when your disability begins. If you have limited your usual occupation to the performance of the substantial and material duties of a single medical or dental specialty, we will deem that specialty to be your usual occupation.”
Notes:
This definition of disability is comprehensive because it includes the own occupation provision. The own occupation provision liberalizes the definition of disability by considering the insured totally disabled even if the insured is able to earn an income in a different occupation/specialty. This provision is critical for physicians because it protects them in their highly-specialized profession. For instance, if a surgeon suffers a disability preventing him/her from operating on patients, but would still be able to consult with patients as a general practitioner, the surgeon would still be considered totally disabled and receive the full benefit amount.
Specialty specific language is ideal because occupation alone may be enough for the company to limit the insured as a generic “physician” as opposed to an “anesthesiologist.” We want the language to avoid ambiguity which only empowers the insurance company at time of claim.
The “usual” and “regular” occupation language is most common in occupation specific definitions of disability. It can be seen in the definition of disability for most competitive companies in the individual disability insurance market. This language provides that if the insured changes occupation/specialty, the new occupation/specialty will become the “usual” or “regular” occupation to be protected.
The “material and substantial” language is in the favor of the insured as opposed to the “any and every duty” language of group/association contracts. For instance, as a surgeon, the act of performing surgery is a material and substantial duty whereas checking e-mail is not.
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For a complimentary review of your disability policy to make certain it contains the definitions and provisions needed for comprehensive coverage, contact me today.