When an illness or injury prevents an insured person from performing one or more of the functions of his or her regular job the disability is called?

There are two basic types of disability insurance: Short-term disability insurance, also called STD, designed for temporary disabilities and typically replaces 60%-80% of your income while you're unable to work. Benefits typically last 3-6 months – and never more than a year – or until you recover. Long term disability insurance, also called LTD, is for more severe and even permanent disabilities. The income benefit lasts for many years – through retirement if needed – replacing 60%-80% of your after-tax income if you are totally disabled. 

The definition of disability is key 

Every policy has a specific definition of what it means to be disabled in order to qualify for total disability benefits. An STD insurance policy has a relatively simple definition: if you are unable to perform the 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. 

However, longer-lasting disabilities present another possibility: an injury or illness could make you unable to perform the substantial duties of your own occupation, but might not prevent you from practicing any occupation. So, some LTD policies 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 his or her 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. 

Policies for physicians, dentists, lawyers, and independent business owners need to be more comprehensive. A surgeon who loses part of a finger in a car accident might be unable to perform surgery. A trial attorney whose vocal cords are damaged by throat cancer might not be able to argue a case in court or perform other substantial duties. In both 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.

Long term disability insurance with an own-occupation definition of disability – or for short, own-occupation disability insurance – pays a benefit if you lose the ability to perform your regular occupation. Because 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 a number of options under their own-occupation definition of disability2:

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. If the surgeon in the above scenario had disability insurance for physicians with this definition, he or she could take a teaching or consulting job and still receive replacement income for the entire benefit period.

2. Modified Own-Occupation

This definition pays a full benefit if you can’t work in your regular occupation and you are not gainfully employed in another capacity. Accordingly, the lawyer in the above scenario would receive benefits as long as he or she wasn’t earning income – but if they decided to start working as a legal consultant, income benefits would stop.

3. Two-Year True Own-Occupation

This definition of disability offers a two-year period 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 due to sickness or injury, you’re unable to work in any occupation.

An umbrella term for any or all the monetary and other benefits (e.g., rehabilitation) you may be eligible for under the terms of the disability policy. In other words, what you are buying when you purchase a policy.

Elimination period

Also called a waiting period. This is the period of time you have to wait after you are disabled until you may start receiving benefits. It’ll generally be shorter for an STD policy, and longer for an LTD policy.

Exclusion

A condition or activity that the insurance company will not have to pay benefits for if it results in a disability.  

Future purchase option

An optional provision (or rider) that will allow you to buy increased coverage at a later point, even if your health has declined without providing additional medical information. Financial information may still be requested.

This option is typically not available with disability coverage obtained through an employer. In the case of group disability insurance, there is usually an open enrollment period that might allow members of the group coverage to change their disability benefits according to their needs.

Pre-existing condition

A pre-existing condition (e.g., heart disease or cancer) you had before getting your policy. Many, but not all pre-existing conditions can be excluded from disability coverage or may result in the individual paying a higher premium. Pre-existing medical conditions are often subject to a limitation clause for a set period of time. For example, if a person makes a benefits claim tied to a pre-existing condition, the benefit may be subject to a limitation if the claim is made during the defined pre-existing conditions timeframe which is often within 12 or 24 months after policy issue.

Premium

The amount you pay for your policy. Your premium amount will vary based on the type of disability coverage, the benefit amount, benefit period, your health, and the optional provisions or riders included in your policy contract.

Reconsideration period

This is a provision that lets you ask the insurance company to reconsider and/or remove an exclusion from your policy – for example if a medical condition becomes resolved.

Underwriting

The process in which the insurance company looks at all your medical records and other information then determines if they will issue you a policy and the cost of your policy based on the risks involved. For group disability coverage, underwriting does not determine the cost, although it may be needed to determine an additional coverage amount over the guaranteed issue of a policy.

Simplified issue/underwriting

A type of policy where your premiums are calculated (or underwritten) without having to undergo a medical exam. This may result in higher premiums, because the insurance company assumes that there will be more medical risks involved.

Waiting period

Also called an elimination period. This is the period of time you have to wait after you are disabled until you can start receiving benefits. It will generally be shorter for an STD policy, and longer for an LTD policy.

Riders

Policy provisions that typically enhance your coverage, for example, a cost-of-living adjustment rider that increases your benefit to account for inflation. Riders usually come at an added cost to your policy but can provide important added value.

Non-cancelable provision

A common policy provision that states that the insurance company cannot raise your premiums or change the terms of the coverage as long as you keep paying them. Typically goes with a guaranteed renewability provision.

Guaranteed renewability

A common provision that states that the insurance company will renew a policy at the end of each term up to a specified age or date as long as the premiums pare paid. The insurer may make changes in the premium rates.

Substantial Gainful Activity (SGA)

A term used by the Social Security Administration referring to work for which you get paid. In order to qualify for SSDI you’re not allowed to earn over a certain dollar amount each month. Note that income from other sources, such as investments or interest, does not count as SGA income.

Attending physicians’ statement (APS)

A report by a doctor or medical facility that has treated you. During the underwriting process, the insurance company will often ask for an APS to either verify the state of your health or get more background about a medical issue.

Presumptive disability

A provision to start paying benefits earlier if you have a sudden, drastic disability such as the total and complete loss of sight in both eyes, hearing in both ears, speech, or the use of any two limbs. This is often not a provision for which you pay an extra premium – it’s built into most contracts.