How Occupational Therapists Should Purchase Long-Term Disability Insurance

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If you are an occupational therapist looking to purchase a long-term disability insurance policy, this article is for you.

Before reading on, be sure to read over Why Allied Health Professionals Should Consider Purchasing Long-Term Disability Insurance. That article will give you a tutorial on long-term disability insurance and why I recommend occupational therapists consider purchasing it for themselves.

This article will walk you through how to make sure you purchase the correct type of policy.

Let’s get started.

HOW DO I CHOOSE MY INSURANCE AGENT?

It is very important that you work with an independent insurance agent. 

Many insurance agents are captive – this means that they work for a specific insurance company. Since they work for a specific insurance company, guess which insurance company’s policy they are going to try to get you to buy? 

Instead of trying to sell you on only one insurance company’s policy, an independent insurance agent will present you with policies from several different insurance companies. This allows you to have to choices when deciding which policy to purchase.

It should be fairly easy to determine if an insurance agent is truly independent because they will advertise themselves as such. However, if the insurance agent only presents you with one insurance company’s policy and doesn’t give you any other choices, then they are likely not an independent agent. 

I used Pattern as my independent insurance agent to help me purchase my long-term disability insurance policy. One reason I chose to work with them is because they presented me with a simple handout that clearly illustrates which insurance companies I could choose to purchase a policy from. 

Here is what that handout looks like: 

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If you would like to use Pattern to purchase your long-term disability insurance policy like I did, you can start by filling out a simple form by clicking here.

A few more important tips to keep in mind. 

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You agent should also be free to work with – that is, they should not charge you a fee. Instead, they make their money from the insurance company you choose to purchase your policy from. 

The agent you choose to work with does not need to be located near you, or even in the same state for that matter. All of the steps needed to purchase your policy can be done with your agent clear on the other side of the country, with all communication taking place by email and phone. 

Perhaps most importantly, your agent needs to be familiar with the occupational therapy profession. This is crucial to help make sure you purchase a policy with what is called own occupation coverage. 

We will go into more detail on what that means next.

WHAT IS OWN OCCUPATION COVERAGE AND WHAT TYPES SHOULD I AVOID?

The own occupation clause of a disability insurance policy simply determines if and when you will receive a benefit.

There are a range of different definitions for the own occupation clause, so it is very important you know what you are purchasing.

Below are examples of different types of own occupation clauses with an explanation of their meanings:

Any Occupation Coverage: 

Any occupation coverage is the most commonly used definition of own occupation coverage. You will often see it used in disability insurance policies provided by employer group policies. 

An any occupation coverage policy will only allow you to receive a benefit if you are unable to work any job at all that the insurance company feels is suitable for you based on your education, training and experience.

If you choose not to work one of these jobs when the job is available, the insurance company will not provide you with any benefit. 

Modified Own Occupation Coverage:

Modified own occupation coverage is a step up from any occupation coverage because this type of coverage will provide you with a benefit if you are unable to work at an occupational therapy job.

However, if you choose to work at a non-occupational therapy job, then you will no longer be provided with a benefit.

Transitional Own Occupation Coverage:

A step up from modified own occupation coverage, transitional own occupation coverage allows you to collect a benefit even if you choose to work at a non-occupational therapy job.

However, that non-occupational therapy job’s income cannot exceed 80% of the income you used to make as an occupational therapist. If it does, then you will only receive a benefit equivalent to the remaining 20% of your income generated from your previous occupational therapy job. 

WHAT IS TRUE OWN OCCUPATION COVERAGE AND WHY DO I WANT IT?

Now that you know commonly used definitions of own occupation which you should avoid, it’s time to learn about which definition of own occupation you should purchase: a true own occupation policy.

If you work with the right type of agent, you should not have any difficulty only looking at policies with a true own occupation policy.

A true own occupation policy allows you to collect your full benefit even if you were to work at a job of a different occupation. Best of all, you have no restrictions on the amount of income you can make at that new job – you will still collect the same benefit amount. 

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One example might be if you were to become too disabled to work as an occupational therapist performing direct patient care, so you decided to work as a professor at an occupational therapy graduate school program instead. You could generate as much income working as a professor as you like and still receive your full benefit amount. 

That is why having a true own occupation clause is so crucial.

WHICH INSURANCE COMPANIES OFFER TRUE OWN OCCUPATION POLICIES?

As of the writing of this article, I have only found 6 insurance companies in the United States that offer a true own occupation type of disability insurance policy. These companies are the following:

  1. Ameritas
  2. Guardian
  3. Mass Mutual
  4. Ohio Financial Services
  5. Principle
  6. The Standard

Not all of these companies will offer a true own occupation clause to occupational therapists in long-term disability insurance policy, though, so your agent will help you narrow down your choices to those that do. 

Another limiting factor is where you live. For example, Ohio Financial Services does not offer long-term disability insurance policies to residents in California or New York. Since I live in California, Ohio Financial Services was not an option for me.

WHEN CAN I START COLLECTING A BENEFIT AND HOW LONG CAN I COLLECT IT?

While the own occupational clause is the most important aspect of the long-term disability insurance policy, there are still other elements to consider. 

Let’s take a closer look at those next:

Elimination Period:

If you read Why Allied Health Professionals Should Consider Purchasing Long-Term Disability Insurance, then you probably recall that the elimination period is how much time must go by after you become disabled before you can start receiving a benefit. 

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The length of time most often used is 90 days. This would mean that you could start collecting your benefit on the 91stday after your disability began. 

You can decrease the length of time to a shorter time than 90 days if you’d like, but it will cost you more. Similarly, if you choose a period greater than 90 days, then it would make your policy cheaper. 

Whichever elimination period you chose, just make sure that you have enough money in your emergency fund to tide you over until your benefit kicks in. 

Maximum Benefit Period:

The maximum benefit period is the amount of time you can continue to collect a disability benefit. This length of time usually lasts until you either reach a certain age or collect your benefit for a certain number of years.

 A common age used is 65 years old since this is a common age for retirement. It’s typically not in your best interest to set your maximum benefit period to an age greater than this since it will drive up the cost of your policy and you could be financially stable enough by that age that you may very well cancel your policy before reaching this age. 

Mental Health Disorders:

Disability due to a mental health diagnosis is considered differently than physical disability where long-term disability is concerned. This is because, unfortunately, there tends to be more fraud in this area. 

That is why it is commonplace for long-term disability insurance policies to provide a much shorter benefit period, such as 24 months, for mental health disorders. 

CAN I ADD ANYTHING ELSE TO MY POLICY?

Many other components can be added to your long-term disability insurance policy should you choose to include them. These optional add-ons are referred to as riders and can provide additional value to your policy at an additional cost.

Here are a few examples of riders you will likely encounter when purchasing your policy:

Residual/Partial Disability Rider: 

Up to this point, we have only addressed your disability coverage in the event you had become completely disabled and were unable to perform your job as an occupational therapist. But what if you could still do some of your job? Enter, residual/partial disability rider.

The residual/partial disability rider would allow you to collect a benefit as long as that lost income, measured as a percentage of your pre-disability income, exceeds the threshold specified in your residual-partial disability rider. 

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For example, let’s say that before your disability you were working 40 hours per week but after your disability you are now only able to work 30 hours each week. This would result in a 25% loss in the income you earned prior to your disability. 

If your residual/partial disability rider states that you can receive a benefit if the percentage of your lost income is 20% or greater, then you would receive the benefit since your 25% of income lost exceed the 20% of lost income. 

If you had only lost 10% of your income, though, then you would not be able to receive the benefit.

But what if you work more than one job? Since it is common for occupational therapists to pick up a side hustle or second job to increase income, let’s consider an example where you make 50% of your income working in the outpatient setting, 20% of your income working in the inpatient setting, and 30% of your income working in the home health setting.

If you were to become disabled so that you were no longer able to work in the outpatient setting but you could continue to work in the home health and outpatient settings, then you would experience a 50% loss of in your income. If your residual/partial disability rider’s threshold for receiving a benefit was experiencing at least a 20% loss in income, then your 50% loss in income would make you eligible to receive the benefit. 

Future Purchase Option Rider:

The future purchase options rider allows you to have the option of increasing the amount of benefit you can receive if you were to later become disabled without having to undergo the underwriting process again like you did when you first purchased your long-term disability insurance policy.

This can be a very helpful rider to have if you purchase your long-term disability insurance policy shortly after graduating from your occupational therapy graduate school program. Also, our health typically declines as we age. 

When you graduate from your occupational therapy program, your income potential is at its greatest because you have so many income-generating years in front of you. If you were to experience a disability at this stage in your life, it would be a massive financial loss. 

That is why purchasing a long-term disability insurance policy early on in your career is a good idea and, if you get the future purchase options rider, you can always increase your benefit as your income grows over time without having to undergo another medical screening even if your health declines.

In fact, I made sure to include this rider in the policy I purchased. My policy allows me to increase my coverage every 3 years by as much as $20,000 per month if I choose. However, insurance companies are wary of you becoming over-insured, so your income would have to substantiate this increased benefit.

In general, insurance companies aim to insure around 40-60% of your monthly income. 

Catastrophic Disability Rider:

Earlier we talked about partial disability. The catastrophic disability rider offers a benefit that is doubled in value.

To receive the benefit, you must be unable to perform at least two activities of daily living (ADLs) such as ambulation, bathing, using the bathroom, dressing, feeding, transfers, and memory or experience a major loss such as the use of one whole limb, both hands, both feet, eyesight in both eyes, or speech. 

Cost of Living Rider:

With every year that goes by, money becomes slightly less valuable because of inflation. If you were to become disabled, you would collect the same benefit every year. However, this same benefit amount would gradually be worth less and less each year due to inflation. 

That’s where the cost of living rider comes in. It makes sure your benefit amount keeps up with inflation if you were to become disabled. 

The cost of living rider is even more important if you purchase your long-term disability insurance policy early in your career because you will have many years of inflation devaluing your benefit amount. 

Non-Cancelable Rider and Guaranteed Renewable Rider:

The non-cancelable rider prevents the insurance company from increasing your premiums while the guaranteed renewable rider prevents the insurance company from changing the terms of your policy or completely canceling your policy.

Both of these riders are often included in your long-term disability insurance policy. If they are not, you will want to add them in.  

HOW LARGE A POLICY CAN/SHOULD I PURCHASE?

It can be in your best interest to purchase the largest policy you can early on in your career. The amount of income you make will dictate how large of a policy you can purchase. Your income will need to be verified by providing a W-2 from your full-time job and/or a 1099 statement from your side hustles. 

You can instead opt to provide your previous tax return, which I found easiest to do since that included all of the side hustle income I made from my cash-paying private clients as well.

When calculating how much coverage to purchase, be sure to account for anticipated large future expenses such as purchasing a house, getting married, and having children.

If you would like to purchase more coverage than your income currently allows, you can always purchase the future options rider that was discussed earlier and increase your coverage later on.

DO I NEED TO KEEP MY LONG-TERM DISABILITY POLICY UNTIL IT EXPIRES?

No, and I actually hope you don’t! Hopefully you will work towards and reach a financial position where you are no longer reliant on your job’s income. When that happens, you will no longer need to try to replace your job’s income should you experience a disability. 

Financial Pearl: Before cancelling your long-term disability insurance policy, it can be wise to schedule an appointment with your primary care physician and do your best to make sure your health is in good standing. This can be even more important if you have a family history of any serious medical issues. 

FINAL THOUGHTS. . .

I hope you found the information covered here beneficial. Feel free to refer back to Why Physical and Occupational Therapists Should Consider Purchasing Long-Term Disability Insurance as needed.

If you’re ready to purchase your own private long-term disability insurance policy and you would like to work with Pattern like I did, you can click here to get started

Before moving on, please help make the Money Mobilizer a helpful and welcoming community for our current and soon-to-be physical therapy colleagues by leaving a question or sharing your knowledge below! 

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