Understanding Own-Occupation Insurance

It’s not fun to think about, but what would happen if you became disabled in a way that prevented you from practicing medicine? Could your family still afford your mortgage? Your kid’s daycare?

The fact is, most of us have been laser focused on training to become a doctor. If we suddenly couldn’t work as one, we probably wouldn’t have a second career lined up to replace our lost income (although consulting could help a ton!). And if we become totally disabled—meaning we couldn’t work at all—then it could really be a dire situation.

That’s where own-occupation disability insurance comes in.

What is own-occupation insurance?

Own-occupation disability policies pay benefits to workers who become unable to do their job because of an injury or illness. It's basically a safety net that kicks in to save the day if you were to become disabled either temporarily or on a long-term basis. It’s a benefit that’s popular among high-earning professionals like physicians—and for good reason.

Why do physicians need disability insurance?

You might be thinking, “Why do I need disability insurance? I work in an office. Yes, the medical stool is a little uncomfortable, but it’s probably not going to cause a major injury…”

Well, the fact is, regardless of your specialty, physicians need disability insurance because the bulk of injuries and many of the illnesses that cause disability actually happen outside the job. And worker’s comp doesn’t cover those scenarios.

Also, some estimates say there's a greater than 25 percent chance you’ll be out of work due to a disability for at least a year at some point before retiring. I don't know about you, but with two kids and a cat depending on me and my wife, that’s just not a risk I can take.

What is the best policy for physicians? And how much insurance do I need?

Like most insurance things, the answer to these questions depends on your particular needs and circumstances. One approach to finding the best policy for you and your family is to think about the major contract terms, and how you want those to shake out.

Here are some key contract terms to consider:

• Definition of disability. This differs based on whether your policy is for short or long-term benefits.
  • Short-term policies typically define disability as a temporary illness or injury that keeps you from doing the bulk of the duties of your current job. So if you’re a surgeon and you sprain your hand, this type of policy could cover you for a few months.
  • Long-term policies are a bit more complicated. Some policies condition benefits on whether a long-term injury or illness prevents you from doing your current job. Other policies only provide coverage if the injury/illness prevents you from doing any job. For most doctors, it makes sense to pay more to get the first type of policy, since your earning potential in another role is almost always going to be less.

• Waiting period. This is the amount of time between the onset of a disability and the payment of benefits. You can save some money by electing to have a longer waiting period. Just one more reason why having about six months of living expenses saved up is always a good idea.
• Coverage amount. It’s all about finding the sweet spot. Too little insurance, and you might not be able to make ends meet even once your benefits kick in after filing a claim. Too much insurance, and your monthly premium might be unaffordable. For long-term policies, the general advice is to go for a policy that would replace 60-80 percent of your net income.
• Coverage exclusions. Hopefully you don’t have to worry about any of these, but it’s worth noting that most insurance companies aren’t going to cover you if you get hurt or sick doing something really dumb. For example, most policies don’t cover drunk driving injuries when the subscriber was the driver.

How much does own-occupation insurance cost?

The cost of own-occupation disability policies varies widely because they are among the most personalized plans out there. In general, you can expect to pay between 1 and 3 percent of your annual income. The exact price will vary based on factors like your age, health, whether you smoke, and, of course, what you want your policy to look like (e.g., how much coverage you want and how long of a waiting period you’re willing to tolerate).

It might seem pricey to you now, but if you ever need it, own-occupation disability insurance is usually something that’s worth every penny.