Residual Disability, Social Security, and the Surgeon Who Teaches
Dr. Priya, 52, is an orthopedic surgeon earning $30,000 per month. She owns an individual disability income policy with an $8,000 monthly benefit, a 90-day elimination period, an own-occupation definition for the first 24 months, and a residual disability rider. The policy offsets Social Security benefits by 50%. In February she sustained a dominant-hand nerve injury; she stopped operating but began teaching and consulting, earning $12,000 per month starting in May. Social Security approved her claim in July for $1,800 per month, retroactive to February. Her group long-term disability plan pays 60% of her $25,000 base salary and offsets 'other income' including Social Security; it does not mention individual disability policies. She wants to know what she will receive for April, May, and July.
1. Calculate the individual policy benefit for April and May.
Read the worked answer
April is still within the 90-day elimination period, so the individual policy pays $0. The first payable month is May. Use the residual formula: prior monthly income is $30,000; current income is $12,000; lost income is $18,000; loss ratio is $18,000 divided by $30,000, or 60%. Residual benefit equals $8,000 times 60%, or $4,800. Social Security had not been paid for May, so no offset applies yet. May benefit is $4,800. If the policy instead treated her as totally disabled under the own-occupation definition, the result could be the full $8,000, but most residual riders pay the proportional amount when the insured is working and earning income. The policy language controls. The group plan has its own elimination period and does not change the individual policy calculation in April or May.
2. Calculate the July benefit and explain how the retroactive Social Security award is handled.
Read the worked answer
In July the residual benefit is still $4,800 before offset because the income loss remains 60%. Social Security is $1,800 per month, and the policy offsets 50% of that, or $900. July benefit equals $4,800 minus $900, or $3,900. The retroactive Social Security award covers February through June. For May and June, when the individual policy paid $4,800 without an offset, the insurer may recover the $900 monthly offset from the retroactive lump sum or deduct it from future benefits. The insurer cannot offset more than the policy allows, and the offset should apply only to months for which Social Security was actually paid. If the group plan also offsets Social Security, the combined benefits must be checked against any total-benefit cap, but the individual policy does not offset group long-term disability benefits unless its own language says so.
3. Does teaching end her total disability benefit, or does the residual rider control?
Read the worked answer
Teaching does not automatically end benefits. Under a strict own-occupation definition, she is totally disabled if she cannot perform the substantial and material duties of an orthopedic surgeon. Operating is central to that occupation, so she likely qualifies even while teaching. But because she has a residual disability rider and is earning income, the insurer will usually pay the residual benefit rather than the full total-disability benefit. The residual benefit rises as lost income rises. If her loss reaches the policy's threshold, often 80%, many policies pay the full $8,000. If she returns to operating full time at her prior income, the residual benefit ends. She must report income and any return to work promptly, and the insurer may ask for tax returns and practice records to verify the loss. The group plan's own definition and offsets should be analyzed separately.