Long-Term Disability Coverage Trap

Good to Know

What’s worse than never accumulating wealth?  Losing it after you’ve accumulated it! From that perspective, an underinsured long-term disability can zap a client’s wealth faster than the government can spend tax dollars.  When, if ever, has your client reviewed their LTD insurance policy?  They may be under the mistaken impression that the definition of disability and their eligibility for benefits fits their needs adequately.  Hopefully, that is the case but for far too many clients, it is not.  Getting this right takes on grave importance because disability is more common than premature death during a client’s working years.  There are three basic definitions of disability.

  • Any occupation
  • Reasonable occupation
  • Own occupation

In the discussion below, assume your client Marie is a highly paid brain surgeon and recently developed debilitating arthritis in her operating hand.

  • Any occupation—Marie is not eligible for LTD benefits if she can perform any substantial gainful employment, such as being able to say “Upsize those fries, mister?”
  • Reasonable occupation—Marie is not eligible for LTD benefits if she can perform in any occupation for which she’s reasonably suited by training, education, or experience, such as working as a medical director in a health insurance company or teaching at a medical school.
  • Own occupation—Marie is eligible for LTD benefits. She can no longer work in her own occupation because of her arthritis.

Now let’s compare the effectiveness and premium costs.

Definition Effectiveness Relative Premium Cost
Own occupation Best Highest
Reasonable occupation Moderate Moderate
Any occupation Worst Lowest

But what if your client wants “own occupation” coverage but lacks the cash flow to pay the relatively high premiums? There’s an intriguing hybrid definition referred to as a “Split-Definition” policy. The premiums are lower than “own occupation” premiums and the effectiveness is better than “reasonable occupation” coverage. The goal here is a financial “safe landing” for your client at a more affordable premium. For example, a split-definition policy may provide “own occupation” coverage for three years after the disability and then convert to a “reasonable occupation” coverage thereafter.


A sharp financial planner or advisor doesn’t ask a client if they have LTD coverage. The better approach could be “How have you planned for income in case of a long-term disability?” That question could very well lead to a review of their policy.

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The information presented herein is provided purely for educational purposes and to raise awareness of these issues; it is not meant to provide and should not be used to provide financial advice of any kind—including but not limited to legal, identity theft protection, investment, income tax, risk management, retirement, or estate advice.  Consult an experienced, credentialed expert for detailed guidance.