Own Occupation Disability Insurance: The Secret Weapon of Successful Professionals

If you are a professional who relies on your skills and income to perform your job, you may want to consider getting own occupation disability insurance.

Own occupation disability insurance
Own occupation disability insurance | Photo courtesy: Financial Residency

This type of policy can provide you with financial security and peace of mind in case you become disabled and unable to work in your own occupation.

What is own occupation disability insurance?

Own occupation disability insurance is a type of disability insurance that covers you if you are unable to perform the duties of your own occupation, even if you can work in another profession. For example, if you are a surgeon and you lose your finger in an accident, you may not be able to do surgery anymore, but you may be able to work as a consultant or a teacher.

With this insurance, you can still receive benefits from your policy, regardless of your income from other sources.

How does own occupation disability insurance work?

When you buy an own occupation disability insurance policy, you and the insurance company agree on a definition of your own occupation, based on your training, experience, and income.

You also choose a:

  • benefit amount
  • waiting period
  • benefit period

The benefit amount is the monthly payment that you will receive if you become disabled.

The waiting period is the amount of time that you have to wait before you can start receiving benefits.

The benefit period is the length of time that you will receive benefits for.

If you become disabled and unable to work in your occupation, you have to file a claim with your insurance company and provide proof of your disability and income.

The insurance company will review your claim and determine if you qualify for benefits.

If you do, you will start receiving payments after the waiting period ends, until the benefit period expires or you recover from your disability.

An infographic showing how own occupation disability insurance works.
An infographic showing how own occupation disability insurance works by Michael Ndenga

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What are the benefits of own occupation disability insurance?

This disability insurance can offer you several advantages, such as:

  • Protecting your income and lifestyle. If you have a high-paying or specialized job, you may not be able to find another occupation that matches your income and skill level. It can help you maintain your standard of living and pay for your expenses, such as mortgage, bills, education, and retirement.
  • Giving you flexibility and choice. If you have this disability insurance, you can decide whether you want to work in another profession or not, without affecting your benefits. You can also choose to work part-time or full-time, depending on your preferences and abilities.
  • Providing tax benefits. If you pay for your disability insurance premiums with your after-tax income, your benefits will be tax-free. This can increase your net income and reduce your tax liability.

Where can you get own occupation disability insurance?

You can get this disability insurance from various sources, such as:

  • Your employer. Some employers offer group disability insurance plans that include own occupation coverage. However, these plans may have limited benefits, exclusions, and portability. You may also have to pay taxes on your benefits if your employer pays for your premiums.
  • Your professional association. Some professional associations, such as the American Medical Association or the American Bar Association, offer this insurance plans to their members. These plans may have lower premiums, higher benefits, and more flexibility than group plans. However, they may also have stricter eligibility requirements and underwriting standards.
  • An independent insurance agent or broker. You can also buy this insurance from an independent agent or broker who can compare different policies and companies and find the best one for your needs and budget. You can also customize your policy and add riders, such as cost-of-living adjustment, residual disability, or future purchase options.

How to choose the best own occupation disability insurance policy?

To choose the best own occupation disability insurance policy, you should consider the following factors:

  • The definition of own occupation. You should look for a policy that has a clear and broad definition of your own occupation, based on your actual duties and not your title or industry. You should also avoid policies that have modifiers, such as “reasonable” or “any gainful”, that can limit your benefits or eligibility.
  • The benefit amount and duration. You should choose a policy that can replace at least 60% of your pre-tax income and last until your expected retirement age. You should also consider inflation and future income growth when determining your benefit amount.
  • The waiting and benefit periods. You should choose a policy that has a waiting period that matches your emergency fund and a benefit period that matches your financial goals. You should also consider the trade-off between the length of the periods and the cost of the premiums.
  • The exclusions and limitations. You should read the fine print of your policy and understand what conditions, injuries, or occupations are not covered or have reduced benefits. You should also check the policy’s renewal and cancellation terms and conditions.
  • The riders and options. You should consider adding riders or options that can enhance your coverage and suit your needs, such as cost-of-living adjustment, residual disability, future purchase option, or non-cancelable and guaranteed renewable.

Conclusion

This is a type of disability insurance that can protect your income and career if you become disabled and unable to work in your own occupation.

It can offer you financial security, flexibility, and tax benefits. However, it can also be expensive and complex.

Therefore, you should compare different policies and companies, and consult an independent agent or broker, before buying own occupation disability insurance.

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