Disability
Every disability insurance plan has a definition of total disability in the policy, you should always know the exact language of this definition before you own anything. There are three basic types:
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True Own-Occupation
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Modified Own-Occupation
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Gainful Occupation
Own-Occupation Disability Insurance
The most comprehensive definition of total disability available. This type of policy will have a definition that says:
The inability to perform the material and substantial duties of your regular occupation, the insurance company will consider your occupation to be the occupation you are engaged in at the time you become disabled, they will pay the claim even if you are working in some other capacity.
Own-occupation disability insurance is the only plan that does not penalize somebody for going back to work in a different occupation while on a claim. Under this type of plan, the bottom line is if because of a sickness or injury you can not perform in your occupation, you will be considered totally disabled, even if you choose to do something else.
Income Replacement Insurance
This has become the most common definition of total disability in the industry today. Most insurance carriers that have stopped offering own-occupation disability insurance have moved to an income replacement definition. You will find the first part of the definition is very similiar to an own-occupation definition, but it is with the second part that the major change occurs. A typical income replacement definition will look something like this:
Because of sickness or injury you are unable to perform the material and substantial duties of your occupation, and are not engaged in any other occupation.
As you can see there is a major difference between an income replacement and an own-occupation definition of total disability. The income replacement definition will penalize you during a claim if you make the decision to go back to work, or earn another source of earned income while on a claim. I have found that most people if given the choice would go back to some work if possible, under this plan if somebody wants to go back to work in some capacity, the insurance company may offset your monthly benefit check. There is a common misconception that own-occupation disability insurance costs a lot more than an income replacement policy.
Gainful Occupation Coverage
This definition of total disability is very common in an employer sponsored group long term disability insurance policy, or with property and casualty insurance companies that decided to release a disability insurance policy. It is quite simply the worst definition available and should be at the very least supplemented with a quality contract if not replaced entirely. This definition basically leaves the determination of whether or not you are disabled up to the insurance company.
