How to Insure Your Income: Age, Sex and Occupation
From the perspective of underwriting disability income insurance, the age, sex and occupation of the applicant are important. (These factors are generally more relevant to the underwriting of health insurance than life insurance.)
This is especially true regarding the occupation and sex of the applicant.
A fact most people find surprising: Women become disabled more frequently than men do. Therefore, women present a higher disability risk. This runs opposite to most trends in the life insurance market, where women are usually a lower risk.
Insurance experts have various theories about why women make disability claims more often than men do. The most common: Women pay more attention to their health than men do -- and, therefore, use health insurance and disability insurance more frequently. This contributes to their longer life expectancy and lower life insurance rates.
Whatever the reason, the underwriting impact remains clear. Because women pose a bigger disability risk, the disability income premiums for women are usually higher than for men.
Occupation is another critical underwriting factor for disability insurance. Most insurance companies group jobs according to the degree of injury risk they pose. These groups are typically identified as classes 1, 2, 3 and 4 (or A, B, C and D). Class 1 occupations are the least hazardous and class 4 occupations are the most hazardous.
Other forms of income insurance -- particularly workers' comp coverage -- also use occupational classifications. However, these other systems can be extremely complicated.
The following chart illustrates a typical occupational classification table.
Occupational Classifications
Class 1 Physicians, dentists, lawyers, accountants, schoolteachers, actuaries, insurance sales representatives, corporate officers, most engineers, architects, corporate executives.
Class 2 General clerical employees, bank tellers, inside salespersons, outside salespersons with limited travel, most building contractors (office duties only), barbers, electricians (no high voltage), chemists, registered nurses, practical nurses.
Class 3 Bartenders, waiters and waitresses, cooks, gas station attendants, salespersons with extensive travel, high-voltage electricians, plumbers, mechanics, most factory workers.
Class 4 Bridge workers, construction workers, truck drivers, sanitation workers, fire fighters, police personnel, mine workers, tree trimmers, window washers (high buildings).
Note: This chart is illustrative in nature and not to be considered all-inclusive. In addition, certain insurance companies may classify the same occupation differently. For example, general clerical employees may be considered class 1 by one insurer and class 2 by another.
A police officer applying for life insurance is normally a standard risk -- and does not present any unusual hazard with regard to mortality. However, a police officer applying for disability income insurance is a different matter. He or she is more likely to be injured -- and thus disabled -- due to the risks faced on the job.
Therefore, as an underwriting factor, occupation is more heavily weighted in terms of disability income coverage.
If you work in a class 3 or 4 occupation, an insurance company will multiply its base rate by a factor of anything from 1.1 to 3.0 to determine the premium you have to pay. These multiples usually will be determined by a company's claims history for particular occupations -- though they'll also be influenced by other factors.
A caveat: Pricing models for disability income insurance are not standard. Different insurance companies will sometimes classify the same job differently. And the multiples that one insurance company applies to job classifications may be different from those used by another company.
But the premium isn't the only thing affected by job classification. The benefit amount, for one, also may be restricted by occupation.
Example: A doctor may be able to purchase up to $15,000 a month of disability income protection, but a plumber who may have the same earned income as the doctor is limited to a maximum benefit of $5,000 per month -- due to the higher occupational risk.
Other restrictions or limitations that may apply due to a person's occupation include the type of disability income policy offered -- that is, depending on the maximum benefit period or the elimination period.
Example: A fire fighter may have a restricted maximum benefit amount and also only be able to purchase a disability income policy with a maximum benefit period of two years and nothing shorter than a 90-day EP, due to the occupational risk involved.
Another pricing factor: An accident or sickness may result in the total disability of the insured person from one job -- but not from another. And this hierarchy of risk is not necessarily the same as a hierarchy of income -- or responsibility.
Example: A beautician with an infected finger due to a torn cuticle might be unable to perform the duties of her occupation and be disabled. A bank president with an infected finger is not likely to be totally disabled. Therefore, in this context, a beautician would present a higher occupational risk than a bank president.
How you fill out the policy application has a lot to do with how an insurance company will view you as a risk. The company usually will want to know more about you than that you are a salesperson, for example. A salesperson working in a clothing store does not present any unusual underwriting problem -- but a traveling salesperson who drives 60,000 to 80,000 miles per year in an automobile is exposed to a higher level of risk.
As a consumer, your best approach is to compare the premium quoted by a company to its policy's benefit amount and benefit period.
