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toastAs most physicians, dentists and highly paid executives know, policies were sold in the 1980’s and 90’s as “own occupation better than sliced bread” coverage. At the time,  it was believed by insurers  that highly skilled professionals would never file disability claims for secondary gain. It didn’t take long, however, for insurers to find out how really wrong they were.

Many IDI insurance companies actually went out of business while others neared bankruptcy. Not only did physicians file disability claims indiscriminately, but the advent of HMOs and PPOs hurried practicing physicians out of their patient practices. Many physicians took advantage of their disability “own occupation” policies and nearly  bankrupted insurers who sold them. Actuarial data proving highly paid professionals were more honest wasn’t true at all!

The famous IDI myth perpetrated by unwary agents was that insureds could work full-time in another occupation and still receive total disability benefits. At the same time agents were touting the “better than sliced bread” marketing scheme, they were also selling “Residual Disability Riders” and including residual disability in the basic contractual language.

What agents failed to realize is that the inclusion of “residual disability” provided TWO definitions of disability, one for insureds not working at all, and one for insureds who were able to “perform one or more duties of their regular occupation,, or any other occupation….” The only true “own occupation policy” was one without mention of “residual disability at all.

Basically, if there is no “residual disability” mention in the IDI policy, it is true that insureds can work in another occupation and receive 100% total disability benefits. However, if the IDI policy mentions “residual disability” or contains a residual disability rider, insureds are paid “residually” and are compensated for a percentage of earnings lost, called Proportionate Loss Formula, or PPL.

To make matters worse, for a long time, insurers themselves paid insureds 100% total disability even when claims should have been paid residually. Unscrupulous attorneys came into the picture to fight for IDI insureds, AND WON in some cases.

Insurers basically gave up the fight when they realized how unwise “own occupation” policies were and decided not to spend outrageous legal fees litigating. There are still claims today being paid 100% total disability benefits when “residual disability” provisions and riders exist in the policies.

In the end, many professionals, and their agents, failed to realize the significance of “residual disability” provisions and still tell me today, “I have one of those great “own occupation policies”, not realizing they really have burned toast. 

Insurers now have over forty years experience reviewing and investigating IDI “better than sliced bread policies.” And, the first thing insurers do today is exercise “residual disability” provisions and riders paying percentages of total disability based on earnings.

But, it’s more than that. Successful ongoing IDI investigation strategies, developed over time, involve proving that physicians who work “outside of their own occupations” are functionally and medically able to perform the material and substantial duties of their own occupation. Anesthesiologists, for example, working in pain management, are often investigated and found capable of returning to work in their own field – or so the story goes.

Transitioning medical functional capacity from an alternative occupation to one’s own occupation is not a difficult thing to do from a claims investigation perspective. For example, all Unum, Guardian, Mass Mutual, has to do is demand an IME, conduct surveillance and then use the new documentation to allege insureds can perform their own occupation. It’s not that hard to do. Insurers have become experts in conducting “own occupation” investigations to prove functional capacity in one’s own occupation.

Policy language misrepresentation, historically, was another way insurers attempted to defend themselves against their own stupidity in selling these policies in the first place. Insurers often paid 50% residual benefits without contractual authority to do so; others configured PMI (Prior Monthly Income) in such a way as to not pay or minimally pay insured benefits owed. In my opinion, Mass Mutual nearly always misrepresents IDI policy language today.

Additionally, companies such as Unum played statistical games with CPT and CDT codes re-defining pre-disability and post-disability material and substantial duties. This practice is still on-going today. If an alternative occupation requires any of the former own occupation duties, claims can be denied. As I said, it’s not hard to do to put documentation in the file that any insured is capable of performing his/her own occupation.

While there are many ways insurers can manipulate IDI own occupation policies, insureds still have it in their minds that the IDI coverage they have is indeed “better than sliced bread.”

However, the truth is that policies purchased under the sliced bread logo/myth don’t even put bread on the table these days. Insureds may in fact qualify contractually for residual benefits, but depending on 100% total disability payments while working in another occupation is a thing of the past.

The truth is, “better than sliced bread” policies have been toast for quite some time. Even the agents who sold these policies 40 years ago still don’t understand why.