When disability insurance companies build and price policies, they do so largely on the amount of risk involved.
One of the major determining factors of the risk involved with providing long term disability coverage is the occupation of the insured. To determine the pricing and benefits of policies, insurance companies group jobs into specific occupational classes based on risk.
These occupational classes take into account the hazards of the job and the difficulty in returning to work following a disability. Another factor is the claim experience associated with certain professions.
Insurance companies generally classify occupations on a scale of 1 to 5 or 6. Many use the letter M to designate medical professionals. Typically, the higher the numerical value of the classification, the lower the rate available will be from the insurance company (and perceived risk).
Medical specialties are not all classified the same. Typically, general practitioners, internists, and family practice physicians are in a higher class and will therefore pay lower premiums than surgeons, emergency room physicians, and other procedurally oriented doctors.
As your career progresses, it is wise to assess your occupation class to see if you can qualify for better rates.
Keep in mind the following about occupational risk classes when shopping for and comparing physician disability insurance.
For example, one company may classify oncologists in their 4M class, while a competing company may designate them as a 5M. In some cases, the discrepancy between insurers for certain specialties may vary by two class numbers.
Therefore, when shopping for disability insurance, you should give special consideration to a company’s policy which placed you in a higher classification than other companies.
Insurers may at times adjust occupational risk classes based on data that shows more or less risk in certain specialties, or the desire to boost sales among certain prospective customers. For example, an insurance company may inform its contracted agents that a certain group of specialists has been moved from a 4M risk class to a 5M class. Companies sometimes offer temporary discounts to certain classes as well.
The occupational class of your medical specialty will determine five key aspects of your disability policy:
- How much you will pay in premium.
The area most impacted by your occupational class is the amount you will pay for coverage. Typically, the higher the numerical value of your class, the lower the premium you will pay.
- How much in monthly benefits you can receive.
Insurers will cap the monthly benefit they will pay in the event of disability based on your occupational class.
- The maximum benefit you can receive.
In some cases, your occupational class can determine whether you can receive payments to age 65 or if you’ll be limited to a pre-established period of time.
- Whether you can obtain own-occupation coverage.
An own-occupation provision on a disability insurance policy means it will pay benefits if an injury prevents you from working in your medical specialty, even if you’re well enough to earn an income doing other types of work. This provision helps define what constitutes a disability and whether you will collect benefits. For some companies and policies, your occupation class will determine if your base policy will carry an own-occupation definition. Otherwise, the policy may have an any-occupation definition, which means it will only pay benefits if you are unable to work in any capacity.
- The amount of coverage for mental and nervous disabilities.
Occupation class can directly affect the extent of coverage you get with regard to mental and nervous coverage For example, certain occupational classes may limit this coverage to two years.
To make it easy to see which medical specialties are viewed more favorably by each insurance company, we’ve provided a list of current occupation classes for the six major physician disability insurance companies:
Shopping for disability insurance is not easy, and occupational classes are just one risk factor insurance companies use to assess the risk of insureds. Your age, health, and in some cases, gender, will also determine how much you pay and what benefits you can qualify for. It’s possible that your health condition may underwrite more favorably with one company, even though your medical specialty is in a lower risk class.
Because of the complexity and the varying degree of features and benefits available, it’s best to work with an independent agent who can provide quotes on several different disability insurance policies instead of a captive agent who may only offer you one choice.
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Colin is the CEO & Co-founder of LeverageRx, a personal finance company exclusively for healthcare professionals. A former investment banker turned entrepreneur, Colin has well over a decade of experience in the financial services industry and is also a licensed life and health insurance agent. He was named Midlands Business Journal’s 2019 Entrepreneur of the Year and his work has been featured in Forbes, Council for Disability Awareness, Medical Economics, Dental Products Report, HCP Live, and more.