Occupational Classification

<body topmargin=0 leftmargin=0 marginheight=0 marginwidth=0> <table cellpadding=0 cellspacing=0 border=0><tr> <td valign="top" colspan=2 height=90 BGCOLOR="#006699" TEXT="#080000" bgproperties="fixed" background="122285a1erlcgo.gif"> <div> <FONT SIZE="5" COLOR="#FFCC66" FACE="Arial" ><B>Disability Income Insurance</B></FONT><B>     |     </B><A HREF="index.htm" TARGET="_top" TITLE="Disability Income Insurance"><U><B>home</B></U></A></div> <div> back to  <A HREF="id5.htm" TARGET="_top" TITLE="Chapter 4"><U><B>Chapter 4</B></U></A></div> <div> </div> </td> </tr><tr> <td valign="top" width=210 BGCOLOR="#FFCC66" TEXT="#080000" background="121d2c00dkelyh.gif"> <div> <A HREF="mailto:instructor@wallstreetinstructors.com" TARGET="_top" TITLE="mailto:instructor@wallstreetinstructors."><U> <IMG SRC="12aaf630.gif" border=0 ALIGN="BOTTOM" HSPACE="0" VSPACE="0" width="175" height="99"></U></A></div> <div> <TABLE BORDER="2" CELLPADDING="2" CELLSPACING="1" WIDTH="83" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 16 ><NOBR><div> <A HREF="mailto:instructor@wallstreetinstructors.com" TARGET="_top" TITLE="mailto:instructor@wallstreetinstructors."><U>Instructor</U></A></div> </NOBR></tD> </tR> </TABLE></div> <bR> <div> <B>Occupational Classification</B></div> <div> <A HREF="id41.htm" TARGET="_top" TITLE="Financial Underwriting"><U>Financial Underwriting</U></A></div> <div> <A HREF="id42.htm" TARGET="_top" TITLE="Medical Underwriting"><U>Medical Underwriting</U></A></div> <div> <A HREF="id43.htm" TARGET="_top" TITLE="Chapter 4 Review"><U>Chapter 4 Review</U></A></div> <bR> </td> <td valign="top" height=390 BGCOLOR="#FFFFFF" TEXT="#080000"> <div> <B>Occupational Classification</B></div> <bR> <div> When we examined the disability income policy's renewability provisions, we noted that in the case of Guaranteed Renewable policies, the insurer had a limited right to raise premiums.  The limitation imposed on the insurer's right to raise premiums on these policies limits its right only to raise premiums on a class basis.  Insurers are not permitted to limit an increase in premiums only to your client's Guaranteed Renewable policy because of his bad claims history.</div> <bR> <div> When we think of "classes" in disability income insurance policies, we mean that classification that is based on the applicant's occupation.  This classification system results in occupation classes.  </div> <bR> <div> The primary role of occupation classes is to provide a sound and equitable basis for providing disability income insurance protection that takes into account two important considerations:</div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" ALIGN="bottom" HSPACE="0" VSPACE="0" width="24" height="16">The likelihood of the insured's becoming disabled because of the risks imposed by his or her occupation, and</div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" ALIGN="bottom" HSPACE="0" VSPACE="0" width="24" height="16">The probability of the insured's returning to his or her own occupation following a period of disability</div> <bR> <div> Unlike the risk of death, which is principally a function of age, an applicant's occupation is an extremely important factor in the likelihood of his or her becoming disabled.  A significant reason for the difference is that the determination of the applicant's continued disability often rests on whether he or she is able to perform the duties of that job.   </div> <bR> <div> Principally for that reason, it made good sense to place the many occupations in which people are employed into classifications that reflect both the job hazard and its likelihood of resumption.</div> <bR> <div>  <A NAME="occ_affects"><IMG BORDER="0" SRC="1x1.gif" ALIGN="bottom" HSPACE="0" VSPACE="0" width="1" height="1" ></A>Once the various occupations are assigned to their appropriate classification, these classifications play an important role in determining the:</div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" ALIGN="bottom" HSPACE="0" VSPACE="0" width="24" height="16">Maximum monthly disability benefit amount available</div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" ALIGN="bottom" HSPACE="0" VSPACE="0" width="24" height="16">Maximum benefit period available </div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" ALIGN="bottom" HSPACE="0" VSPACE="0" width="24" height="16">Premium rate category</div> <bR> <div> The insurer's Occupation Guide lists the occupation classes into which an applicant might fall based on the principal duties of his or her occupation.  The information in the guide is usually presented in two ways:  </div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" ALIGN="bottom" HSPACE="0" VSPACE="0" width="24" height="16">An alphabetical listing of the most common occupations, followed by a designation of the class to which that occupation belongs  </div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" ALIGN="bottom" HSPACE="0" VSPACE="0" width="24" height="16">A broad definition of each occupation class providing general guidelines as to class placement, based on typical duties of an occupation:</div> <bR> <bR> <DIV ALIGN="LEFT"></DIV> <div> <TABLE BORDER="2" CELLPADDING="7" CELLSPACING="1" WIDTH="649" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" BGCOLOR=#FFCC66 > <tR> <tD VALIGN=TOP BGCOLOR=#006699 HEIGHT= 19 WIDTH="473"><div> <I><B>General Description of Occupation Class</B></I></div> </tD> <tD VALIGN=TOP BGCOLOR=#006699><NOBR><div> <I><B>Occupation Class</B></I></div> </NOBR></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 36 WIDTH="473"><div> <B>Select professionals and managers with most favorable underwriting and claims experience</B></div> </tD> <tD VALIGN=TOP WIDTH="137"><div> <B> 5A</B></div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 36 WIDTH="473"><div> <B> Most professionals and managers  --  office duties only; no extensive traveling</B></div> </tD> <tD VALIGN=TOP WIDTH="137"><div> <B> 4A</B></div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="473"><div> <B>Same as occupation class 4A, but with travel</B></div> </tD> <tD VALIGN=TOP WIDTH="137"><div> <B> 3A</B></div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 54 WIDTH="473"><div> <B>Persons engaged in social service, medical support, clerical, selected commission sales or office or retail setting; light manual duties</B></div> </tD> <tD VALIGN=TOP WIDTH="137"><div> <B> 2A</B></div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 90 WIDTH="473"><div> <B>Certain skilled trades & supervision (foreman) and some medical support personnel.  Work is often performed in a shop, medical facility, retail establishment or outdoors using light machinery; direct supervision of personnel performing manual duties; chiropractors</B></div> </tD> <tD VALIGN=TOP WIDTH="137"><div> <B> A</B></div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 36 WIDTH="473"><div> <B> Personnel engaged in heavy manual duties; skilled and unskilled occupations (laborer)</B></div> </tD> <tD VALIGN=TOP WIDTH="137"><div> <B> B</B></div> </tD> </tR> </TABLE></div> <bR> <bR> <div> By looking at the general occupation class guidelines, you can see how occupation classes are characterized in this second method.  In addition, however, these guidelines generally describe the limits of manual involvement permitted within each class.  You will notice as the occupation classes move from 5A to 4A and eventually to B that the description of duties includes increasing amounts of manual work.</div> <bR> <div> Although any individual insurer may change the language of the occupation classification chart, it is a composite of the way a number of companies approach the general classification of occupations.  Not unexpectedly, perhaps, there are consequences to an applicant of being placed in a particular occupation class.  </div> <bR> <div> There are certain benefit limitations normally imposed by insurers on the basis of the insured's occupation class.  Often, applicants considered to present the least risk -- those that fall into occupation class 5A, 4A or 3A -- may purchase a lifetime benefit period while those applicants in the more hazardous occupations cannot.  Typically, those applicants that fall into classes A or B may be limited to 5 year or 2 year maximum benefit periods.</div> <bR> <div> The limitations that insurers impose based on occupation class don't apply only to the maximum benefit periods available.  The amount of maximum monthly benefit available may also be based on occupation classes.  While an applicant that is a 5A risk may be able to obtain $15,000 of monthly income benefit, a bricklayer -- a B risk -- may be limited to $2,000 of maximum monthly disability income benefit.</div> <bR> <bR> <DIV ALIGN="LEFT"></DIV> <div> <B>BENEFIT LIMITATIONS BASED ON OCCUPATION CLASS </B></div> <bR> <div> <TABLE BORDER="2" CELLPADDING="5" CELLSPACING="1" WIDTH="655" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" BGCOLOR=#FFCC66 > <tR> <tD VALIGN=CENTER BGCOLOR=#006699 HEIGHT= 38 WIDTH="111"><div> <I><B> Occupation  Class</B></I></div> </tD> <tD VALIGN=CENTER BGCOLOR=#006699 WIDTH="122"><div> <I><B>Maximum  Benefit  Period</B></I></div> </tD> <tD VALIGN=CENTER BGCOLOR=#006699 WIDTH="134"><div> <I><B>Maximum Monthly Benefit</B></I></div> </tD> <tD VALIGN=CENTER BGCOLOR=#006699 WIDTH="231"><div> <I><B> Disability  Definition</B></I></div> </tD> </tR> <tR> <tD VALIGN=CENTER HEIGHT= 36 WIDTH="111"><div> <B>  5A</B></div> </tD> <tD VALIGN=CENTER WIDTH="122"><div> <B>  Lifetime</B></div> </tD> <tD VALIGN=CENTER WIDTH="134"><div> <B>  $15,000</B></div> </tD> <tD VALIGN=CENTER WIDTH="231"><div> <B> Own occupation for entire benefit period</B></div> </tD> </tR> <tR> <tD VALIGN=CENTER HEIGHT= 19 WIDTH="111"><div> <B> 4A</B></div> </tD> <tD VALIGN=CENTER WIDTH="122"><div> <B> Lifetime</B></div> </tD> <tD VALIGN=CENTER WIDTH="134"><div> <B> $10,000</B></div> </tD> <tD VALIGN=CENTER><NOBR><div> <B> Own occupation to age 65</B></div> </NOBR></tD> </tR> <tR> <tD VALIGN=CENTER HEIGHT= 19 WIDTH="111"><div> <B>3A</B></div> </tD> <tD VALIGN=CENTER WIDTH="122"><div> <B>Lifetime</B></div> </tD> <tD VALIGN=CENTER WIDTH="134"><div> <B>$10,000</B></div> </tD> <tD VALIGN=CENTER><NOBR><div> <B> Own occupation to age 65</B></div> </NOBR></tD> </tR> <tR> <tD VALIGN=CENTER HEIGHT= 36 WIDTH="111"><div> <B>2A</B></div> </tD> <tD VALIGN=CENTER WIDTH="122"><div> <B>Age 65</B></div> </tD> <tD VALIGN=CENTER WIDTH="134"><div> <B>$5,000</B></div> </tD> <tD VALIGN=CENTER WIDTH="231"><div> <B>Own occupation (not engaged in any other occupation)</B></div> </tD> </tR> <tR> <tD VALIGN=CENTER HEIGHT= 19 WIDTH="111"><div> <B>A</B></div> </tD> <tD VALIGN=CENTER WIDTH="122"><div> <B>5 Years</B></div> </tD> <tD VALIGN=CENTER WIDTH="134"><div> <B>$3,000</B></div> </tD> <tD VALIGN=CENTER><NOBR><div> <B>Limited own occupation (2 years)</B></div> </NOBR></tD> </tR> <tR> <tD VALIGN=CENTER HEIGHT= 19 WIDTH="111"><div> <B>B</B></div> </tD> <tD VALIGN=CENTER WIDTH="122"><div> <B>2 Years</B></div> </tD> <tD VALIGN=CENTER WIDTH="134"><div> <B>$2,000</B></div> </tD> <tD VALIGN=CENTER WIDTH="231"><div> <B>Any occupation</B></div> </tD> </tR> </TABLE></div> <bR> <bR> <bR> <div> As we can see, it isn't only the available amounts and benefit periods that are limited based on occupation class, occupation class also affects the actual definition of disability.  It is undeniably more difficult for an insured in a lower occupation class to meet the definition of disability than for an insured in a higher occupation class because the definition is often considerably more stringent at the lower occupation classes that present the higher risk.  </div> <bR> <div> Notice that an insured in the B occupation class often must be unable to engage in any occupation in order to be considered disabled.</div> <bR> <DIV ALIGN="LEFT"></DIV> <div> <B>BENEFIT LIMITATIONS BASED ON OCCUPATION CLASS </B></div> <bR> <bR> <div> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="655" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 39 ><NOBR><div>  Occupation  Class</div> </NOBR></tD> <tD VALIGN=TOP WIDTH="130"><div> Maximum  Benefit  Period</div> </tD> <tD VALIGN=TOP WIDTH="142"><div> Maximum Monthly Benefit</div> </tD> <tD VALIGN=TOP WIDTH="239"><div>  Disability  Definition</div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 39 WIDTH="119"><div> <B>  5A</B></div> </tD> <tD VALIGN=TOP WIDTH="130"><div> <B>  Lifetime</B></div> </tD> <tD VALIGN=TOP WIDTH="142"><div> <B>  $15,000</B></div> </tD> <tD VALIGN=TOP WIDTH="239"><div> <B> Own occupation for entire benefit period</B></div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 20 WIDTH="119"><div> <B> 4A</B></div> </tD> <tD VALIGN=TOP WIDTH="130"><div> <B> Lifetime</B></div> </tD> <tD VALIGN=TOP WIDTH="142"><div> <B> $10,000</B></div> </tD> <tD VALIGN=TOP><NOBR><div> <B> Own occupation to age 65</B></div> </NOBR></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 20 WIDTH="119"><div> <B>3A</B></div> </tD> <tD VALIGN=TOP WIDTH="130"><div> <B>Lifetime</B></div> </tD> <tD VALIGN=TOP WIDTH="142"><div> <B>$10,000</B></div> </tD> <tD VALIGN=TOP><NOBR><div> <B> Own occupation to age 65</B></div> </NOBR></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 39 WIDTH="119"><div> <B>2A</B></div> </tD> <tD VALIGN=TOP WIDTH="130"><div> <B>Age 65</B></div> </tD> <tD VALIGN=TOP WIDTH="142"><div> <B>$5,000</B></div> </tD> <tD VALIGN=TOP WIDTH="239"><div> <B>Own occupation (not engaged in any other occupation)</B></div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 20 WIDTH="119"><div> <B>A</B></div> </tD> <tD VALIGN=TOP WIDTH="130"><div> <B>5 Years</B></div> </tD> <tD VALIGN=TOP WIDTH="142"><div> <B>$3,000</B></div> </tD> <tD VALIGN=TOP><NOBR><div> <B>Limited own occupation (2 years)</B></div> </NOBR></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 20 WIDTH="119"><div> <B>B</B></div> </tD> <tD VALIGN=TOP WIDTH="130"><div> <B>2 Years</B></div> </tD> <tD VALIGN=TOP WIDTH="142"><div> <B>$2,000</B></div> </tD> <tD VALIGN=TOP WIDTH="239"><div> <B>Any occupation</B></div> </tD> </tR> </TABLE></div> <bR> <bR> <bR> <div> Although the differences that we have discussed based on the insured's occupation class are certainly important ones, the difference in the treatment of occupation classes that is usually most visible to the applicant is the difference in premium. The premium for the insured B risk, per $1 of benefit, may easily be double that charged the 5A risk.</div> <bR> <div> It is the difference in the probability and severity of the disabilities to which people in different occupations are exposed that constitute the justification for the difference in the available benefits and their cost.  It is clear that a bricklayer may suffer a disability and be unable to return to work as easily as would someone engaged in the accounting profession, simply because of the physical requirements of the job.</div> <bR> <div> The nature of the industry, as well as the specific duties of a particular occupation, often impacts on the severity of the disability.  Consider, for example, an industry in which employment tends to be cyclical or sporadic.  It shouldn't be a surprise that these industries also incur the greatest number of disability claims during periods of unemployment.  This phenomenon isn't necessarily the result of malingering, either.  If disabled workers have no job to which to return, their drive to recover may be adversely affected.</div> <bR> <div> Along the same lines, a job that involves irregular hours or earnings, such as a bartender, may constitute a higher disability risk.</div> <bR> <div> There are also occupations that are usually uninsurable in most companies and which are characterized by:</div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" ALIGN="bottom" HSPACE="0" VSPACE="0" width="24" height="16">extreme hazard</div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" ALIGN="bottom" HSPACE="0" VSPACE="0" width="24" height="16">employment instability, and </div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" ALIGN="bottom" HSPACE="0" VSPACE="0" width="24" height="16">significant claims administration problems</div> <bR> <div> It doesn't take much imagination to conjure up a mental picture of someone in an occupation involving significant hazard.   Consider those individuals working with explosives or firearms.  In addition, occupations involving work at extreme heights would also qualify -- jobs like those of individuals building skyscrapers.</div> <bR> <div> Employment instability is generally a hallmark of those individuals employed in the performing arts.  It is that employment instability that usually causes them to be uninsurable for disability income insurance in most companies.  Included in this occupation classification are actors, singers and dancers.</div> <bR> <div>  <A NAME="at_home_workers"><IMG BORDER="0" SRC="1x1.gif" ALIGN="bottom" HSPACE="0" VSPACE="0" width="1" height="1" ></A>Those occupations in which the insured works at home may involve significant claims administration problems.  The reason for those problems is simple: it is extremely difficult to objectively determine if the insured is unable to engage in his or her occupation.  As a result of that claims administration difficulty, many insurers choose not to make their disability income insurance products available to individuals that work at home.  </div> <bR> <div> An exception is often made for those occupations in which the insured maintains an office in his or her home but must leave the office to see clients.  A salesman might fall into this category.  Applicants in such a situation are not usually be uninsurable because of their home office status.</div> <bR> <bR> <bR> <div> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="97" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" BGCOLOR=#FFCC66 > <tR> <tD VALIGN=CENTER HEIGHT= 38 WIDTH="87"><div> <A HREF="id41.htm" TARGET="_top" TITLE="Financial Underwriting"><U><B><U>NEXT</U></B></U></A></div> </tD> </tR> </TABLE></div> <bR> </td> </tr></table></body>