Disability insurance provides important protection for anyone who depends on a paycheck. Although certain markets – like doctors – have traditionally been seen as prime prospects, workers in all different types of industries can benefit from the peace of mind that comes with coverage.
This doesn’t mean that occupation doesn’t matter, however. In fact, occupation in very important when securing a disability insurance policy.
Occupation Classes
When applying for disability insurance, a person’s occupation will determine which occupation class they fall into. Although different disability insurance companies will vary somewhat in how they use occupation classes, this label is an important factor when deciding how much coverage is available and at what cost.
For example, according to the Disability Income Insurance Seller’s Guide, Assurity uses both a person’s title and duties to put them into one of four occupation classes:
- Class 1A is for heavy manual labor or work with an increased risk of accident, such as truck drivers and construction workers.
- Class 2A is for skilled and manual occupations, such as electricians and chefs.
- Class 3A is for professional or office work that includes hazards, such as physical therapists and day care workers.
- Class 4A is for professional or office work with only rare exposure to hazards, such as pharmacists and architects.
Because the occupation class can impact both the premium owed and the amount of benefits available, getting it right is important. And if your client’s occupation or duties change, it’s time to re-examine the policy to determine whether it needs to be updated.
Own Occupation Definitions
If a disability prevents your client from working, your client will depend on disability insurance to replace the lost income.
But what if your client is still able to work in a different occupation? Will the client still be able to qualify for disability insurance benefits? The answer depends on whether the policy uses an own occupation definition or an any occupation definition.
To see why the definition matters, imagine what might happen to a surgeon who experiences a disability impacting fine motor control. The health condition could render her unable to perform surgery. She might be well enough to do other work, but that would mean taking a huge pay cut, and it’s far from ideal. If she has a disability insurance policy with an own occupation definition, she can qualify for benefits in this situation. On the other hand, if she has a policy with an any occupation definition, she might be out of luck.
Own occupation definitions are especially important for jobs that are physically demanding or require good health. It’s also important for skilled workers who have invested time and money into their occupation. For example, pilots must earn their license before they can fly, and health issues can put their license at risk. Getting the right disability insurance is essential with the correct occupation definition is essential for pilots.
On the other hand, an own-occupation definition is expensive, so it’s important to use that definition only when it’s really needed, so clients don’t pay for a coverage feature they’ll never use.
What Should Self-Employed Individuals and Business Owners Consider When Identifying Their Occupational Classes?
When it comes to disability insurance, figuring out the correct occupational class for a self-employed individual or business owner can be tricky. While job titles are usually straightforward in traditional employment, they don’t always fit neatly into predefined categories for insurance purposes.
Here are some key considerations:
- Focus on Tasks, Not Titles: Instead of relying solely on your job title, examine the specific responsibilities and tasks you perform. Occupational classes are largely determined by what the individual actually does day-to-day.
- Multiple Roles: Many self-employed individuals wear several hats, such as managing finances, marketing, and operations. Identify the primary tasks that make up the individual’s workweek, particularly those that pose the greatest risk to your ability to perform if disabled.
- Blue Collar vs. White Collar: Some carriers automatically classify business owners as blue-collar workers, but it may be possible to secure coverage for some business owners under a white-collar classification, and this can open the door to better terms.
By focusing on these elements, you’ll ensure that your occupational class truly reflects the nature of the client’s work, potentially lowering their premiums and ensuring better coverage.
Characteristics of Higher Occupation Classes vs. Lower Occupation Classes
Higher Occupation Classes:
By understanding the distinctions in educational requirements, income potential, and job demands, you can better appreciate the nuances between different occupation classes.
- Educational Requirement: Higher occupation classes roles typically demand extensive education and specialized training.
- Income Level: Individuals in higher occupation classes generally earn more, benefiting from lucrative salaries and substantial packages.
- Risk of Disability: In higher occupation class, there’s typically a reduced risk of becoming disabled due to the nature of the work, which often involves less physical strain.
Is it Possible to Upgrade Your Occupation Class?
Absolutely. A policyholder’s occupation class may not be set in stone. Many insurers are willing to re-examine the occupation class when the situation warrants it. This change can potentially lower the policyholder’s insurance premiums, making it an attractive financial move.
Insurance companies are on the lookout for clients with reliable careers and few risk factors. Individuals with stable jobs typically present fewer liabilities in terms of disability claims. As a reward, these individuals receive more favorable premium rates.
Key Factors Evaluated
- Income Level: Most companies will first examine the policyholder’s income over the past two years. A stable and high income often signals to insurers that you are a lower risk client.
- Industry Experience: Another vital factor is the policyholder’s experience in their current occupation. The more years you’ve dedicated to your field, the better your chances to upgrade your classification.
The team at DIS can help you determine the ideal case design strategy for every client. Contact your closest Regional Brokerage Manager to learn more and be sure to download our DI Crash Course for additional knowhow.