Self-employed individuals without workers’ compensation may have occupational disabilities covered.
Benefits are never more than the insured’s pre-disability income to encourage returning to work.
Definitions of Disability
Total Disability
Two definitions determine if benefits are payable:
Own Occupation (Own Occ): Pays if the insured cannot work in their specific occupation due to disability, even if they can work in another job. Common for professionals (e.g., doctors, lawyers). Higher cost due to easier qualification.
Any Occupation (Any Occ): Pays only if theinsured cannot work in any job suited to their education, training, or experience. Common for blue-collar workers. Lower cost due as it's harder to qualify.
Example: Maria, a surgeon with an own occ policy, cannot perform surgery but can teach. Her policy pays because she cannot work as a surgeon. Alfonso, a farmer with an any occ policy, must be unable to work in any farming-related job to receive benefits.
Presumptive Total Disability
Certain conditions are automatically considered total and permanent, requiring no ongoing physician care or proof of loss:
Quadriplegia or paraplegia
Loss of eyesight
Loss of speech
Loss of any two limbs
Partial Disability
Encourages return to work with reduced benefits:
Partial Disability Benefit (Recovery Benefit): Pays a percentage of the total disability benefit when the insured returns to work part-time after total disability.
Residual Disability Benefit: Pays for income loss due to partial disability reducing work and earnings (at least 20% income loss required).
Example: David, earning $5,000/month, receives $3,000/month total disability benefits. After returning part-time, earning $2,000/month, his partial disability benefit is $1,800/month (60% of total benefit, based on 60% income loss).
Benefits Structure
Benefits are paid as:
Flat Monthly Benefit: Fixed amount (e.g., $500, $1,000), common in individual policies, not exceeding 60% of earnings.
Percentage of Earnings: Common in group policies, e.g., 60% of income or 100% for the first month, then 60% thereafter.
Example:
- Company A: Pays 60% of $3,000/month income = $1,800/month.
- Company B: Pays 100% ($3,000) for first month, then 60% ($1,800).
- Company C: Insured chooses $1,000/month, not exceeding 60% of earnings.
Key Conditions for Benefits
Benefits never exceed pre-disability earnings.
Regular physician care and periodic proof of loss are required (except for presumptive total disability).
Higher benefits increase policy costs.
Other DI Policies
Pure Loss of Income (Income Replacement)
Pays based on income lost if the insured is disabled, cannot work in their occupation, and earns less in another job.
Individual Credit Disability Insurance
Owned by creditors to cover loan payments if the debtor becomes disabled. Benefits match loan payments during disability.
Test Your Knowledge
Question: The own occ definition of total disability best suits which policyholder?
a) Factory line supervisor
b) Orthopedic surgeon
c) Grocery store manager
Answer: b) Orthopedic surgeon
The own occ definition is ideal for professionals like surgeons, as it pays benefits if they cannot perform their specific occupation, even if they can work in another job.
For Your Review
DI policies typically cover nonoccupational disabilities; occupational coverage is for self-employed without workers’ compensation.
Benefits are capped at pre-disability earnings.
Regular physician care and proof of loss are required, except for presumptive total disabilities.
Own occ pays if unable to work in own occupation; any occ pays if unable to work in any suitable occupation.
Partial disability benefits aid return to work; residual benefits cover income loss from partial disability.
Residual benefits stop if income loss is less than 20% of pre-disability earnings.