Own-occupation disability insurance: How it protects what you do best

If an injury or illness keeps you out of work, you might not be able to afford going without a paycheck for long. Less than half of US adults could handle $2,000 or more in emergency expenses using only their savings.¹

Even if you earn a good living and have set aside more, you will still likely want to be prepared for the risk of not working long term. If you're disabled for a year or more, you may have to drain assets like retirement savings before you're ready or sell assets like real estate that you'd prefer to keep. Disability insurance can be a good hedge against these risks, but not all disability insurance is the same. Much depends on the definition of disability and how that relates to the type of work you do. 

Key takeaways 

• Own-occupation disability insurance can pay defined benefits if an illness or injury keeps you from performing the material or substantial duties of your own occupation, even if you can still work in another field. 

• Any-occupation coverage pays only if you cannot work in any suitable occupation, making it a stricter and generally less expensive standard. 

• There are several forms of own-occupation coverage (true, modified, transitional, and hybrids) that balance the breadth of protection against cost. 

• Other important considerations in a disability insurance policy include the waiting period, benefit amount, and benefit period, as well as riders — optional provisions that affect policy costs and let you tailor coverage to your needs. 

• Own-occupation disability insurance is especially important for high-earning professionals and executives whose income depends on their ability to perform their specialty. 

Why your earning ability is worth protecting

If you’re a high-earning professional, ask yourself: What would your life be like if you became disabled and were unable to work in your occupation for a year? What if a disability prevented you from earning significant income for a decade? 

While that might sound far-fetched, the reality is that disability is a real risk every working person must face: According to the Social Security Administration, approximately 1 in 4 20-year-olds will become disabled before retirement.²

And the stakes are arguably more dramatic for high earners such as medical professionals, lawyers, corporate executives, business owners, and specialized knowledge workers like software engineers. Their earning potential typically relies on specific physical and cognitive skills which, if compromised, could leave them unable to work their current occupation and instead, only able to work a different type of occupation with far lower pay. 

So, while it seems counterintuitive, a relatively minor condition — such as arthritis for a dentist, or dysphonia (a voice disorder) for a trial lawyer — could put your lifestyle at risk. That risk can be especially high if you’re a younger professional dealing with high student loan debt and the costs of raising a family for the next few decades. Early in your career, even with a high salary, you probably don’t have enough assets to support your lifestyle indefinitely: In a very real sense, the most valuable asset you likely have is your ability to earn a living.  

That’s why disability insurance is so essential: it can help protect a portion of your income if you get too sick or injured to work. However, if you’re a high-earning professional, not just any policy will do. You need a disability income insurance policy that can help protect your income while doing what you do best. Own-occupation disability insurance can provide this protection, whereas any-occupation policies might not help much if your disability still enables you to work outside your main occupation. 

What is own-occupation disability insurance, and how does it work?

While disability insurance is meant to protect your income if you suffer an illness or injury, the exact definition of a disability varies by policy. Generally speaking, a definition of disability will fall into one of two broad categories: 

• Own-occupation: With own-occupation coverage, you’re generally considered disabled if you can’t perform the material and substantial duties of your own occupation that you had before the injury or illness.

• Any-occupation: This name might sound more comprehensive, but it’s actually a narrower form of insurance protection. Any-occupation coverage generally only considers you disabled if you can’t perform the material and substantial duties of any occupation that you’re reasonably qualified to work in.

The definition of disability is key

Every policy has a specific definition of what it means to be disabled to qualify for benefits. However, short-term and long-term plans tend to take different approaches to defining disability. To understand why, it helps to look at the main difference between these two types of disability insurance: 

• Short-term disability insurance, also called STD, is designed for temporary disabilities and typically replaces 60% to 80% of your income while you're unable to work. Benefits typically last three to six months — and generally not more than a year — or until you recover. There’s generally a waiting period, known as an elimination period, of seven to 30 days until benefits begin.

• Long-term disability insurance, also called LTD, is for longer-lasting and even permanent disabilities. The income benefit typically lasts around two to 10 years or until retirement age if needed, depending on the policy. Group LTD usually replaces in the ballpark of 40% to 70% of your income, and there’s usually around a three to six month elimination period, so some people use STD to cover them until LTD kicks in. 

Often, an STD insurance policy has a relatively simple definition: if you are unable to perform the material and substantial duties of your present occupation because of illness or injury, you may qualify for total disability benefits. After all, STD coverage only lasts a few months, and the assumption is you’ll go back to your regular occupation when you’ve recovered. That said, it’s possible an STD policy could have any-occupation terms. 

Longer-lasting disabilities present another possibility: an injury or illness could make you unable to perform the substantial and material duties of your own occupation, but might not prevent you from practicing any occupation. So, LTD policies vary widely: some have an own-occupation definition of disability, and others have an any-occupation definition. 

Depending on who you are and what you do, either type of policy can be beneficial. For example, a permanent foot injury might keep a railroad conductor from walking easily and performing their regular occupation, but with a little retraining, that person might be able to perform many kinds of desk jobs — even within the same organization — for similar pay. An LTD insurance policy with an any-occupation definition of disability can provide adequate protection for such a person. 

• A surgeon who loses part of a finger in a car accident might be unable to perform surgery.  

• A business executive whose vocal cords are damaged by throat cancer might not be able to work with key customers or perform other substantial duties.  

• A certified registered nurse anesthetist suffering from carpal tunnel syndrome might be unable to safely administer anesthetics.  

• A pharmacist dealing with memory loss can’t safely administer prescriptions.  

• Software engineers or corporate executives struggling with mental illness might not be able to work the long hours their companies require. 

In these situations — and countless others — a professional’s earning potential can be severely impacted by disabilities that make them unable to perform the things they do best, even if they are still qualified and physically able to do other work. 

The forms of own-occupation coverage

As mentioned, long-term disability insurance with an own-occupation definition of disability (also known as own-occupation disability insurance) pays a benefit if you lose the ability to perform your regular occupation. However, since these policies can provide a much more comprehensive level of financial protection, they can be generally more expensive than any-occupation plans. 

For that reason, insurance companies offer different forms of own-occupation coverage to tailor benefits more cost-effectively to your needs. For example, Guardian offers several options under its own-occupation definition of disability³: 

1. True own-occupation

If you can’t work in your regular occupation but are willing and able to work in some other capacity, this definition means you can get your full benefit payment even while holding another kind of job. For those in a medical specialty, for instance, it is crucial to have insurance that accurately reflects the specialized nature of their careers. If the surgeon in the above scenario who lost part of their finger had disability insurance for physicians with this true own-occupation definition, they could likely take a teaching or consulting job and still receive replacement income for the entire benefit period. Or, a dental hygienist might be unable to keep working in dentistry after a hand injury, even though they might be able to get a job. 

2. Modified own-occupation

This definition pays a full benefit if you can’t work in your regular occupation and you choose not to be gainfully employed in another capacity. Accordingly, the trial attorney in the above scenario with damaged vocal cords would receive benefits as long as they weren't earning income from their own occupation — but if they decided to start working in a different occupation, like a legal consultant, for example, income benefits would stop.

3. Two-year true own-occupation

This definition of disability offers two years of true own-occupation. If you’re still disabled after two years, your coverage converts to a modified own-occupation definition for the remainder of your benefit period. 

4. Two-year modified own-occupation

Another option is to simply have a modified own-occupation definition for the first two years. If you’re still disabled after two years, your coverage converts to an any-occupation definition, meaning that you'd only continue to receive benefits if, due to sickness or injury, you’re unable to work in any occupation. 

Some carriers also offer an option called transitional own-occupation coverage. This type of policy lets you work in a new occupation outside your previous occupation, but your benefit adjusts so your total post‑disability income (new job earnings plus disability benefits) does not exceed your pre‑disability income. Essentially, the more you make in the new job, the more your benefit may be reduced. That differs from Guardian's True Own-Occupation definition, which allows you to work in another profession without penalizing your benefits with an income cap. 

Tailoring an own-occupation policy to your needs

A disability insurance policy is a binding contract with an insurance company that’s customized for each policyholder’s needs. In addition to a definition of disability that spells out what is needed to qualify for benefits, the contract will also have provisions that define when benefit payments start, how much is paid, for how long, and so on. Important terms and features to consider tailoring to your needs include: 

The waiting period

Every policy has a waiting or “elimination” period — the amount of time you have to wait after you are disabled until the insurance company starts paying benefits. The period can vary depending on the specific insurance carrier and policy contract: a longer waiting period will tend to lower your premiums, and a shorter waiting period will raise them. If you have STD coverage, your LTD waiting period should coincide with the end of STD benefits to avoid an income lapse. 

The benefit amount

A best practice is to get an LTD policy with a monthly benefit of about 60% to 80% of your after-tax income. Any less, and you could struggle to make ends meet; any more, and the policy could be unaffordable, leading you to let the coverage lapse. Also, insurance companies may not let you “over-insure” with a benefit amount larger than your current earnings. One exception: a disability insurance for physicians policy may allow medical residents to over-insure if they expect significant income growth in the near future.

The benefit period

This is the maximum length of time that you can receive benefits. In an LTD policy, the benefit period could be as little as two or five years — or it could go all the way to a designated retirement age such as 65 or 67 (or until you recover from being disabled). Of course, the longer the benefit period, the more expensive the policy. 

Note that while a long benefit period may be attractive to some policyholders, it's important to consider the insurer's ability to meet long-term commitments. Look for a provider with high Financial Strength Ratings (FSRs), such as Guardian's A++ Superior rating from A.M. Best. 

Other standard and optional provisions

Remember: A disability policy is a contract, and like many contracts, it contains fixed terms and provisions, but there are also optional provisions, which are called riders. Some important provisions and riders to consider when purchasing an own-occupation policy include: 

• Noncancelable provision: This states that the insurer cannot raise your premiums as long as you keep paying them. It typically goes with a guaranteed renewability provision. 

• Guaranteed renewability: This provision states that the insurance company will not cancel your policy or change the terms and features as long as you continue paying your premiums — but they can raise your premiums (unless the policy is also noncancelable). 

• Waiver of premium: This means that premiums are waived while you are disabled and receiving benefits. Guardian goes a step further by offering a plan that waives premiums an extra six months after you recover and benefits end. 

• Student loan protection rider: Early-career professionals, such as medical residents, often have substantial student loan debt — and it doesn’t just go away if you become disabled. This optional benefit provides extra money to ensure student loans are paid during the benefit period. 

• Basic or enhanced partial disability benefit rider: These options help protect you by paying a partial benefit if you suffer an injury or illness that limits your ability to perform certain duties but doesn’t cause you to be totally disabled. 

• Future increase option: This provides the opportunity to increase the benefit amount, typically once a year without going through additional medical underwriting, to account for inflation or increased earnings. 

• Cost-of-living adjustment (COLA): This rider states the insurance company will increase your benefit while on claim to account for inflation. 

An own-occupation disability insurance policy is a significant investment in your financial future. Consider going through all the provisions with a financial advisor to understand the conditions of your contract, the circumstances under which you will be paid a benefit, and how that aligns with your financial situation. 

How to get coverage: group vs. individual

There are two basic ways to get a disability insurance policy — either through a group like an employer or purchased on your own as an individual. More specifically, getting this coverage can look like the following: 

Group disability insurance through your work or an association

Some companies offer group disability insurance, which could be either STD coverage, LTD coverage, or both. The definition of disability within these policies varies by employer, but if your company, firm, or practice employs several high-earning professionals, that might incentivize them to offer own-occupation disability coverage.  

Generally, obtaining this coverage is a matter of opting in during open enrollment (or during a qualifying life event), or your employer might automatically activate coverage unless you opt out during these periods. Often, your employer will subsidize some or all of the premiums. 

If you’re self-employed or a sole practitioner, you may be able to get group disability insurance through a professional association. Either way, group coverage can be an excellent choice: Because the company or association is buying for a large group of people, the premium is typically lower than for an individual policy, at least at the start of the coverage, besides any costs the group may subsidize. On the other hand, because the company or association is effectively “buying in bulk,” you may have less opportunity to tailor the policy to your needs. If the premiums are paid with pre-tax dollars (which is common with employer-paid coverage), then the benefit you may get down the road is generally taxable. Also, if you leave the company or association, in most cases the policy is not portable, meaning you can't take the policy with you and may lose your coverage. 

Another consideration is that standard group LTD often caps benefits and only counts base salaries when calculating benefit amounts, which might leave some high earners underinsured.

So, for highly compensated leaders whose income goes well beyond what a traditional group LTD plan covers, Guardian also offers executive disability solutions for employers to offer to their key employees. Guardian's executive disability insurance applies the same own-occupation philosophy to help protect a larger share of total earnings, including bonuses and incentive pay. This coverage can be layered on top of group protection to help close the income gap for key executives without changing how standard coverage works for the rest of the workforce.

Individual disability insurance

In contrast to group plans, this is a policy you purchase for yourself so that you can tailor it to your needs. If your employer doesn't offer executive disability insurance, for example, a highly paid employee might purchase an individual policy to close gaps. 

Since it is paid for with after-tax dollars, the replacement income it provides is also tax-free. It’s typically bought through a financial advisor; if you don’t have one, or if that person doesn’t have much experience with disability insurance, a Guardian financial advisor can give you a disability insurance quote. When you discuss disability insurance with your financial advisor, be prepared to share as much as you can about your financial situation and goals, so that they can tailor your disability policy to your needs.

What own-occupation coverage costs

Disability insurance is one of the most individualized types of insurance you can get because every person’s situation is unique, and that individuality affects costs. In general, though, expect the cost of disability insurance to range between 1% and 3% of your annual income. The actual premiums you pay will depend on the following

Once you apply for a specific policy, there will typically be an underwriting process (similar to that for life insurance) in which the company assesses your age, lifestyle, and health — younger, healthier applicants generally pay less. You may also be asked to take a medical exam, although the advantage of some group plans is that there may be no medical underwriting required. 

The whole buying process may seem like a lot to think about, but with the help of a good financial advisor, you can come up with an own-occupation disability plan tailored to your needs at a cost you can afford. 

Is own-occupation coverage worth it?

Whether or not an own-occupation disability policy is worth more than any-occupation coverage depends on how you value the tradeoff: own-occupation costs more but protects the specialized earning ability that any-occupation coverage does not.  

For some specialized roles, the cost may be easier to justify. Own-occupation benefits tend to matter most when your income depends on a specific, hard-to-replace skill set, like being a surgeon, attorney, or a C-Suite executive. In contrast, any-occupation disability definitions may suffice when your skills transfer readily to comparable-paying work. 

Ultimately, the difference comes down to the type of policy stability you want. If you're willing to take the risk of having your disability claim denied if you become ill or injured but can work in jobs outside your current occupation, then any-occupation coverage might work for you. But if you'd prefer to be protected and not have to worry about finding work, even if technically you can still do other jobs, then own-occupation might be a better choice for you. 

What to do next

If you want disability income protection, consider starting by asking your employer about group LTD options, along with executive disability solutions if you're in an executive or highly paid role. Your HR team can help walk you through your options to see what coverage is right for you. 

If you're self-employed or considering an individual policy to supplement group benefits, consider speaking with a financial advisor about purchasing coverage. A qualified advisor can help you weigh the pros and cons of different types of disability insurance policies, including looking at the type of own-occupation definition that might make the most sense for your specialized role and financial situation. 

Meanwhile, you can learn more about disability insurance options, or if you're ready to review policies, you can connect with a Guardian financial advisor to get a quote tailored to your specific occupation and other circumstances.