Defining Total Disability
Because the major purpose of disability income policies is to provide income
when the insured is totally disabled and unable to work, the meaning of total
disability is important.
Total disability is always defined
in the policy, and different companies may use different
definitions. These definitions are based on work activity,
and insurers look at work activity in terms of two dimensions:
the insured’s own occupation
and any occupation the insured may be qualified to perform.
Own Occupation
The first way total disability might be defined concerns
the occupation in which the particular individual is normally
engaged. In this case, total disability is defined
as the insured’s inability to perform any or all
of the duties of his or her own occupation.
Any Occupation
An alternative and more restrictive definition of total disability
is the insured’s inability to perform the duties
of any occupation for which he or she is reasonably
qualified by education, training, or experience.
The term own occupation, which
is less restrictive and therefore more favorable to the insured,
is more commonly used than the term any occupation.
Long-term policies generally use both definitions to cover
different periods during the insured’s disability.
The term own occupation is
generally used for the initial period of disability, which
might extend from 2–5 years as stated
in the policy. The term any occupation applies to
disability continuing beyond the initial period.
Loss of Earnings
Some policies use a two-tier definition that refers to the
insured’s own occupation during an initial period
of disability and then shifts to any occupation. These
policies usually define total disability as the inability
to perform the duties of the insured’s own occupation
for a period of 2–5 years, and there after the inability
to perform the duties of any occupation for which the insured
is suited by reason of education, training, experience,
or prior economic status. This is known as the loss
of earnings test for disability.
Injury Versus Sickness
Total disability is occasionally further defined in terms
of its cause. Some policies may cover only—or cover
differently— disability caused by accidental injury,
and some may cover only disability caused by sickness.
Occupational Versus Nonoccupational
Although short-term policies often cover only nonoccupational
disability, most long-term plans cover both occupational and nonoccupational sickness
and accidents. When occupational benefits are provided,
they are often reduced by benefits received from workers
compensation and social security.
Medically Defined
Some older policies also require that in addition to meeting
the definition of total disability, the insured must also
be confined to the house and under the treatment of a doctor.
This is called medically defined disability. |
