A Surgeon's Own-Occupation Policy, Group LTD, and a Partial Return to Work
Dr. Patel, 52, is an orthopedic surgeon earning $30,000 a month from her practice. She owns an individual noncancelable own-occupation disability policy: $12,000 monthly benefit, 90-day elimination period, benefit to age 65, and a residual disability rider requiring at least a 20% loss of income. She also has the hospital's group LTD plan: 60% of her $18,000 monthly base salary, 180-day elimination, own-occupation for 24 months then any-occupation to 65, and an offset for "other income benefits, including individually purchased disability benefits." In March she injures her hand, stops operating, and from month 5 works only in the office and as a consultant, earning $18,000 a month. Her individual premiums are personally paid; the hospital pays the group premium.
1. Calculate what the individual policy pays from month 4 through month 12, showing each step.
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Step 1 - Elimination. The 90-day elimination period means no benefit for months 1–3. Her income continued during that time, so she has no unpaid loss anyway.
Step 2 - Does the residual rider engage? Yes. Her income fell from $30,000 to $18,000, a loss of $12,000, or 40% - above the 20% threshold.
Step 3 - Benefit formula. Residual benefits are proportional to the income loss:
40% × $12,000 = $4,800 per month
Step 4 - Months 4–12. The individual policy pays $4,800 per month for each of those nine months, a total of $43,200.
Step 5 - Tax. Because she pays the premium with personal after-tax dollars, the $4,800 is received income tax free.
Note on the own-occupation definition: she is arguably still totally disabled from her own occupation (she cannot operate), and some contracts would pay the full $12,000 for the first 24 months regardless of the consulting income. Read the residual rider's integration clause - if it pays the greater of full total disability or the residual amount, the answer changes materially. The proportional calculation above is the standard residual result.
2. Calculate the group LTD benefit and explain the offset mechanics and the 24-month cliff.
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Step 1 - Elimination. 180 days means the group plan begins in month 7, not month 4.
Step 2 - Definition of disability. She cannot perform the material and substantial duties of her own occupation (surgery), so she qualifies during the first 24 months even though she is working. Working part-time does not defeat an own-occupation claim.
Step 3 - Gross benefit. 60% × $18,000 base salary = $10,800 per month.
Step 4 - Offset. The plan offsets "other income benefits, including individually purchased disability benefits": $10,800 − $4,800 = $6,000 per month.
Step 5 - Timeline.
- Months 1–3: nothing (neither elimination period satisfied).
- Months 4–6: individual only, $4,800.
- Months 7–12: individual $4,800 + group $6,000 = $10,800 against a $12,000 income loss - roughly 90% replacement, and 96% if you count her $18,000 of consulting income.
Step 6 - Tax. The hospital pays the group premium, so the $6,000 is taxable income. The offset is calculated on the gross benefit, so she nets less than $6,000.
The cliff: at month 25 the group definition flips to any-occupation. She can do office and consulting work, so the group benefit will likely terminate - while the individual own-occupation policy keeps paying $4,800 to age 65.
3. What planning advice follows from this structure, and what would you warn her against?
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Keep the individual policy above all else. It is the only piece that survives the 24-month switch to any-occupation. Dropping or reducing it to "save premium" would be a serious error for a surgeon whose hands are her livelihood.
Keep paying individual premiums personally, with after-tax dollars. That is what makes the $4,800 tax free. Routing them through the practice would make benefits taxable and, worse, could trigger the group plan's other-income offset on a larger gross figure.
Do not expect the benefits to stack. Because the group plan offsets individual DI, every dollar of individual benefit reduces the group benefit dollar for dollar. Her total replacement is capped around 90% of the lost income. The value of the individual policy is not added income - it is portability and duration.
Use the individual contract's growth features. If she has a future increase option or COLA rider, exercise it while healthy; her hand injury will make later underwriting difficult or impossible.
File both claims promptly and disclose each to the other carrier. Non-disclosure of the individual benefit to the group carrier can void the group claim and create a fraud issue.
Expect a Social Security requirement. Most group LTD plans require application for SSDI and offset any award, which further reduces the group piece and again leaves the individual policy as the stable floor.