What is the definition of a disability?

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definition of disability

Unlike the relatively straightforward process of qualifying for the death benefit with life insurance, qualification for disability benefits can be difficult to understand. In order to receive benefits from a disability insurance policy, you must meet the definition of disability as outlined in the contract. But what is the definition, how does it affect premiums, and does it vary from one insurance company to another?

A liberal definition of disability will lead to higher claim success and result in a more expensive policy. The reverse is also true, as a more stringent definition results in more claims being denied and therefore a less expensive policy.

We will address total disability in this post and save partial or reduced disability for a future post, since both require an in-depth look for a complete understanding.

As it turns out, insurance companies usually offer similar definitions for total disability. The following are the most common definitions of total disability found in a disability insurance policy.

Own occupation

Own occupation has the most liberal definition of disability. Because of that, it is also the most expensive. A typical own occupation definition would read as follows:

Total disability means that:

  1. Due directly to injury or sickness, the insured is unable to perform the important duties of his or her occupation; and
  2. The insured is receiving the appropriate care and attendance of a physician who is licensed to practice in Canada.

This means that even if one is disabled in his/her previous occupation, he/she can still do other work and continue to be paid benefits. The combination of salary from a new occupation and benefits from the policy may result in overinsurance, where one is generating a higher income while on claim than pre-disability.

The potential for overinsurance is why the own occupation definition is reserved for occupations where individuals are highly motivated to return to work after suffering a disability. For example, top occupational classes such as physicians, dentist specialists, lawyers, accountants and executives will be able to apply for the own occupation definition. They have spent many years on their education and are more likely to return to their previous occupation than starting a new career. That being said, the choice is there, if they are so inclined.

Regular occupation

Regular occupation is the most popular and common definition of total disability found in a disability insurance policy. It has a less liberal definition than own occupation and is therefore less expensive. A typical regular occupation definition would read as follows:

Total disability means that:

  1. Due directly to injury or sickness, the insured is unable to perform the important duties of his or her occupation;
  2. The insured is not working in any other gainful occupation; and
  3. The insured is receiving the appropriate care and attendance of a physician who is licensed to practice in Canada.

Note the inclusion of point 2, which differentiates the definition from own occupation. By stopping benefits when the disabled individual works in another occupation, it reduces the overinsurance risk. Insurance companies are off the hook in case the disabled individual finds a gainful occupation elsewhere, leading to a lower premium for regular occupation.

Regular occupation is typically available by default on most disability insurance policies, while own occupation is offered as a rider.

Any occupation

Lastly, any occupation has the strictest definition of disability of the three definitions normally offered by insurance companies. As such, it is the least expensive and is the most difficult to qualify for. A typical any occupation definition would read as follows:

Total disability means that:

  1. Due directly to injury or sickness, the insured is unable to perform the important duties of any gainful occupation for which he/she is reasonably qualified, based on his/her education, training, or experience; and
  2. The insured is receiving the appropriate care and attendance of a physician who is licensed to practice in Canada.

The any occupation definition asks the question, ‘Could the insured work in his/her own occupation or another gainful occupation?’ In this case, the proposed occupation must be comparable in status and earnings to the insured’s former line of work, and must be something for which the insured is qualified by virtue of his education and/or work experience. If the answer is ‘no’, the insured is considered totally disabled and benefits will be paid.

For example, if a physical education teacher was unable to perform the main duties of his education due to back pain, he may be reasonably qualified to teach another subject. In this case, he will return to work as a teacher of another subject, and benefits will cease. Note that with the regular occupation definition, benefits will continue since he cannot perform the duties of his previous occupation.

Usually, a policy starts out with the regular occupation definition and after two years of total disability, the any occupation definition is used for the remainder of the benefit period. Policies can be upgraded so that the regular occupation definition is used for the entire benefit period.

To give you an idea of how much a policy with each definition costs, see the tables below.

Monthly premium for a male non-smoker with annual earnings of $98,000, who is eligible for $5,000 of non-taxable monthly benefit. Occupation class 4A, 120 day elimination period, benefit period to age 65, premium level and guaranteed until age 65. Quote from Canada Life's Lifestyle Protection Plan. Rates are current as of April, 2015.
AgeOwn occupationRegular occupationTwo years of regular occupation,
followed by any occupation thereafter
25$79.30$63.23$53.65
30$88.80$70.71$59.86
35$108.41$85.73$73.67
40$136.27$107.38$92.57
45$168.44$132.39$114.17
50$219.02$171.73$148.37
55$265.91$205.84$187.07
60$396.73$305.56$281.21
Monthly premium for a female non-smoker with annual earnings of $98,000, who is eligible for $5,000 of non-taxable monthly benefit. Occupation class 4A, 120 day elimination period, benefit period to age 65, premium level and guaranteed until age 65. Quote from Canada Life's Lifestyle Protection Plan. Rates are current as of April, 2015.
AgeOwn occupationRegular occupationTwo years of regular occupation,
followed by any occupation thereafter
25$134.42$107.78$91.76
30$158.73$127.14$107.92
35$187.65$149.49$129.29
40$213.09$169.48$147.16
45$242.65$192.66$167.95
50$284.45$225.50$197.06
55$317.08$248.63$227.98
60$401.18$314.24$288.23

The definition of disability is one of the most important part of a disability insurance policy. When buying a policy, it may be tempting to save money by choosing the any occupation definition, but the odds of a claim being denied is much higher. Cost-cutting measures can be taken with other parts of the policy, such as elimination period.

You should also review your group benefits booklet if you are enrolled in disability benefits with your employer or association. Depending on the definition of disability, you may want to supplement your group benefits with an individual disability insurance policy.


Image courtesy of Stuart Miles / FreeDigitalPhotos.net