Video and Transcript 4: What Is Disability Insurance?
As we study the content of disability insurance, we must address what we believe in general to be a costly misconception that all disability policies are the same. The natural assumption is that if you own a disability policy and you suffer a long-term disability then your policy will supplement your income with a monthly cash benefit. Nothing could be further from the truth. The truth is regardless of your sickness or injury, whether or not your policy pays you a benefit is wholly contingent upon the language of that contract. In step two, we study the language of the contract to ensure the best protection so that there are no surprises at claim time. We break down what you need into four key components. These components provide the choices and the guarantees that you must have to build a strong financial foundation. The first key component is the definition of disability. How the insurance companies define a disability dictates the path of the claim. If you have an inferior definition then you will have a more difficult time to get your claim processed. The best definition of disability offers you the best protection. Well of course, the question is what is the best definition of disability? And the answer is that it’s an insurance term which is referred to as a True Own Occupation policy. Without a doubt, the True Own Occupation definition is considered the best definition in the industry. It reads, you would be considered totally disabled if you are not able to perform the material and substantial duties of your regular occupation at the time of claim. This definition will allow you as a physician to collect total monthly benefits without any offsets even though you may choose to work in some other occupation and receive a full salary. You see the critical issue here is receiving a full disability benefit without absolutely any offsets to that benefit. Even though you’re working in some other occupation and capable of earning more money, it is all about the claim. How is your claim going to be adjudicated? With this definition, it is what we refer to as a clean claim. There are no benefit offsets, you may even be a physician in some other occupation as shown by the following claim example.
Let’s take a surgeon who becomes disabled due a back problem and is unable to stand for the required length of time needed to perform surgery. The doctor is not able to perform surgeries which was a material and substantial duty prior to the disability. The surgeon is now a claimant and is collecting total monthly tax-free benefit of let’s say 20,000 per month. An opportunity arises for the doctor to become a medical director at a local insurance company and elects to do so. The doctor is now collecting total monthly benefits still 20,000 per month while receiving a full salary as a medical director. In a True Own Occupation policy, the physician is indemnified. If he or she cannot work in their chosen specialty. Please be mindful of the fact that this definition is only found in individual policies. It is not found in Group Disability insurance or Association Plans. This definition was at one time the only definition sold to physicians. Statistically physicians were the least likely to file for a disability claim over 100 companies wrote this definition for physicians and sold robust policies. Physicians felt secure and happy with their policies and insurance companies were profitable. Then everything changed with Health Care Reform in the mid 1990s. Physicians became oppressed and burdened by the managed care industry and filed claims due to stress and burnout. Claims escalated dramatically nationwide. The industry response was to no longer offer the True Own Occupation definition for nearly a decade. So they offered an inferior definition of disability referred to as a Modified Own Occupation Definition.