Occupational versus non-occupational classification

Two questions every disability or health policy answers

When you read the coverage grant on a disability income or medical expense policy, you are looking for the answer to a simple question: does it matter where or how the insured got hurt or sick? The answer puts the policy into one of two classes.

Occupational coverage: on the job and off the job

An occupational policy covers injury and sickness whether or not it arises out of employment. The insured is protected at work, at home, on vacation, anywhere. This is often called 24-hour coverage.

The name trips people up. "Occupational" does not mean "only at work". It means work-related losses are included along with everything else.

Most individual disability income policies are written on an occupational basis.
Occupational coverage matters most to people who have no workers' compensation protection of their own, such as many sole proprietors, partners and other self-employed business owners.

Non-occupational coverage: off the job only

A non-occupational policy covers injury and sickness that does not arise out of and in the course of employment. Work-related losses are excluded, because workers' compensation is the system built to pay for them.

Group disability income plans, especially short-term plans, are usually non-occupational. The employer already carries workers' compensation, so covering job injuries again would pay the same loss twice.
Many group long-term disability plans cover around the clock but reduce their benefit by any workers' compensation the employee receives. That offset serves the same purpose: no double recovery.
Statutory disability benefit plans follow the same design. New York's Disability Benefits Law defines a covered disability as one caused by injury or sickness not arising out of and in the course of an employment, and, with narrow exceptions, pays no benefit for any period in which workers' compensation is paid or payable. The exceptions cover workers' compensation for an earlier permanent partial disability, and a workers' compensation claim that is disputed.

A chart with two column headings, on the job and off the job. The first row, labeled occupational, is a single blue bar stretching across both columns and marked covered on and off the job, twenty-four hour coverage. The second row, labeled non-occupational, has a grey dashed box marked excluded under on the job, and a green bar marked covered under off the job. The third row, labeled workers' compensation, has an orange bar under on the job only, marked pays job-related losses. A note at the bottom says non-occupational coverage and workers' compensation fit together without paying the same loss twice. — Occupational versus non-occupational coverage, and where workers' compensation fits

Occupational classification also drives the premium

Separate from where a loss happens, disability income insurers sort applicants into occupational risk classes by how hazardous their work is. An office worker sits in a better class, and pays less, than a roofer or a logger. Some very hazardous occupations are offered only limited benefits or are declined.

Because the class is fixed at issue, individual accident and health policies may include an optional Change of Occupation provision, in the statute's wording or approved wording no less favorable to the insured:

Change to a more hazardous occupation, then a loss: the insurer pays only the portion of the benefit that the premium actually paid would have bought at the rates for the more hazardous class. The same reduction applies if the insured is hurt while doing, for pay, work belonging to a more hazardous class.
Change to a less hazardous occupation: once the insurer receives proof of the change, it lowers the premium rate and refunds the excess pro-rata unearned premium from the date of the change or from the policy anniversary just before the proof arrived, whichever is more recent.
Where filing is required, the classifications and rates used are the ones the insurer last filed, before the loss or before the proof of change, with the insurance regulator of the state where the insured lived when the policy was issued. If filing was not required, the ones the insurer last made effective in that state before then apply.

Exam tip: "Occupational" = on and off the job. "Non-occupational" = off the job only, because workers' compensation handles the rest. A more hazardous job change reduces the benefit; a less hazardous one reduces the premium.