Occupational versus non-occupational classification

Where did the loss happen?

When an accident, health or disability income policy receives a claim, one early question is whether the injury or sickness is connected to the insured's job. The answer matters because policies are classified as either occupational or non-occupational, and the two respond very differently to a work-related loss.

Occupational coverage: on and off the job

An occupational policy covers a covered injury or sickness whether it happens on the job or away from it. Because it protects the insured around the clock, it is often called 24-hour coverage.

Covering work losses as well as off-the-job losses is a broader promise, so an occupational policy is generally priced higher and underwritten more closely than an otherwise identical non-occupational policy.

Non-occupational coverage: off the job only

A non-occupational policy covers only injury or sickness that is not related to employment. Losses that arise out of and in the course of the insured's work are excluded. The reasoning is that on-the-job losses belong to workers' compensation, the employer-funded system that pays medical bills and part of lost wages for work injuries and occupational diseases. The non-occupational design keeps the policy from paying a second time for a loss workers' compensation already covers.

Exclusion wording differs between policies. Some exclude any work-related loss; others exclude only losses for which workers' compensation benefits are payable. Read the exclusion, not the brochure.

Who usually has which

• Group plans sponsored by an employer, including group medical expense and group short-term and

long-term disability, are usually non-occupational. The employer's employees already have workers' compensation for work injuries, so the group plan does not duplicate it.

• People workers' compensation does not reach, such as many sole proprietors, business owners and

independent contractors, have no work-injury system behind them. For them a non-occupational policy leaves a real gap, and occupational coverage is the design that closes it.

• Individual accident and disability income policies can be written either way, so the

classification must be checked, not assumed.

Why the classification matters

• Gap: under a non-occupational policy, a work injury is simply not covered. If no workers'

compensation applies, nothing pays.

• Duplication: non-occupational wording prevents paying twice for the same work injury.
• Cost: occupational coverage costs more for the same benefit because it covers more.

A related idea: the insured's occupation and risk

Separately from on-the-job versus off-the-job coverage, the insured's occupation is a major underwriting factor for accident and disability income coverage. Hazardous jobs carry a higher chance of injury, so they are placed in a higher-risk occupational class and pay more, or may be declined.

The Change of Occupation provision deals with an insured who switches jobs after the policy is issued:

• More hazardous occupation: the insurer pays only the benefits the premium would have bought at

the rate for the more hazardous occupation.

• Less hazardous occupation: on proof of the change, the insurer lowers the rate and refunds the

excess unearned premium.

At the point of sale, say it plainly: "This plan pays only if the injury or illness is not work related," or "This plan pays whether or not it is work related." Implying that a non-occupational plan covers work injuries misrepresents the policy.