DISABILITY INSURANCE IS NOT COMPLICATED!

Disability Insurance is not complicated, it is just different. What is the definition of “death”? Well…if our brain is not functioning, if we are not breathing, and if our heart is not beating, we are either a politician or we are dead. Obviously death has a definition; we can look it up in the dictionary, but we all know what it means.

On the other hand, a disability is not so easily defined, or I should say, the definition is not as unanimous. Does disability mean that we cannot do our own job? Does it mean that we cannot do any reasonable job?  Does it mean that we cannot work at all? Disability can be “total” – eliminating our ability to work – or “partial/residual” – reducing our ability to work but not completely eliminating it. The effect of a particular disability depends on the job that we do. For example, I cut the median nerve in my right hand in a work accident in 1963 and now have limited sensation in my right hand. It has some effect on my ability to work as I cannot write for an extended period of time, but it has no real effect at all. On the other hand, if I were a surgeon, a dentist, or a jeweler, I might well be totally disabled, as I am right handed and it would definitely impact my ability to do those jobs.

Let us return to the definition of total disability. There are three basic definitions of what constitutes total disability. In order of generosity, they are:

1. “Own Occupation” – Under this definition, you are considered totally disabled if you are unable to do your job and you are under the care of a doctor appropriate to the nature of the disability that you have.
2. “Regular Occupation” – Under this definition, you are considered totally disabled if you are unable to do your job, you are not working in any other job, and you are under the care of a doctor appropriate to the nature of the disability that you have.
3. “Any (or any reasonable) Occupation” – Under this definition, and which we rarely see in the early stages of a disability, you are considered totally disabled if you are unable to engage in any reasonable occupation based on your education, training, and experience (some may also include your income as a determinant of “reasonable”) and you are under the care of a doctor appropriate to the nature of the disability that you have. An even weaker definition eliminates the whole area of “reasonable” and you basically must be unable to do anything.

“Own occupation” can be very attractive, because you can actually economically profit from a disability. If you cannot perform your duties, the company will pay the full benefit under your policy, even if you earn significant income from another occupation. There is a dentist in Montreal who is unable to practice dentistry because of vision problems. He is collecting total disability benefits even though he is working full time, and very successfully, as an insurance advisor. Insurance is supposed to protect us from a loss - not allow us to make money. Therefore insurance companies are limiting the occupations they will offer this feature to for several reasons. First, companies divide occupations into groups (or “classes”) - the higher the “class” the lower the risk for the insurer and they therefore can offer more options, better features, and more guarantees, while keeping the cost low. Second, with “own occupation,” the appeal is really only for those professions that include a “physical” element, surgeons and dentists for example. This is because the disability, while preventing you from working in your current occupation, must also allow you to work in another profession. Frankly I fail to see how psychiatrists, for example, would benefit from this feature. They earn a living by listening to and talking with clients. If they are unable to do that, what will they be able to do?

To me, and my 40 years of experience in this area, the “regular occupation” definition is ideal. It protects against a loss; the insurer does not care what you can do - only what it is that you actually do!

As long as I cannot do my job, and I do not “choose” to work elsewhere, I will be paid. This definition is offered by all the major carriers to basically all occupations. The only issue is “Does (or can) the definition change after 2 or 5 years of disability?” Some carriers include “regular occupation to age 65” as part of their basic policy; others start with a limited period “regular occupation” definition and offer an option of extending it. It is my professional opinion that regular “occupation to age 65” should always be chosen. I do not want the insurer to have the right to re-assess our clients.

Back in 3 weeks to discuss “non-total” disabilities where we will examine cases in which a condition exists that reduces our ability to work without eliminating it completely.

Click these for more information on the respective topics :
Long Term Care Insurance
Disability Insurance
Critical Illness Insurance
Life Insurance
Mortgage Insurance