The Surgeon Who Can Teach
Dr. Patel, 47, is a vascular surgeon earning $20,000 a month. She owns an individual disability policy: $12,000 monthly benefit, 90-day elimination period, own-occupation definition for the first 60 months then any-occupation, 3% compound cost-of-living rider, and a residual benefit that pays proportionally to income lost. She also has a group long-term disability plan paying 60% of base pay, with a 180-day elimination period, an any-occupation definition after 24 months, and offsets for other income. A nerve injury ends her surgical career. She accepts a research and teaching position paying $8,000 a month, starting five months after the injury.
1. Trace what each policy pays from month 1 through month 24.
Read the worked answer
Compare the two elimination periods first, then apply the residual formula.
Months 1–3: individual policy pays $0 - the 90-day elimination period has not run. Group plan pays $0 - its 180-day period has not run.
Month 4: individual policy is now payable. She is not yet working, so she is totally disabled under the own-occupation definition - $12,000. Group still pays $0.
Month 5 onward: she earns $8,000 against a prior $20,000, so her income loss is 60%. Residual benefit = 60% × $12,000 = $7,200 per month. This is the key point: residual benefits are proportional, not all-or-nothing, so returning to work part-time does not zero out the claim.
Month 7 onward: group LTD begins - 60% × $20,000 = $12,000 gross. But group plans offset other income, typically including individual disability benefits and sometimes 50–70% of earnings. With $7,200 in individual benefits plus $8,000 of earnings, the offset could reduce the group payment to near zero.
Practical result: the individual policy, not the group plan, is what actually protects her income.
2. What happens to her benefits at month 61, and what does that reveal about policy design?
Read the worked answer
At month 61 the individual policy's own-occupation period ends and the definition shifts to any occupation - typically work for which she is reasonably fitted by education, training, and experience. Teaching and research at $8,000 a month fits that description. She is therefore no longer disabled under the contract even though she can never operate again.
The $7,200 could drop to $0.
The group plan reached its own any-occupation switch at month 25, so it is no closer to paying; if anything its offset provisions make payment less likely.
What this reveals:
- The headline benefit ($12,000) is not the number that matters - the definition and duration of own-occupation are.
- A residual benefit softens the cliff at month 61 but does not remove it, because residual still requires disability under the then-current definition.
- A surgeon with a narrow skill set pays a premium for a long own-occupation period. If she could only afford 24 months, she should have known her exposure.
- Her real economic loss at month 61 is $20,000 → $8,000: a 60% income cut with no insurance response.
3. Quantify the value of the cost-of-living rider five years into the claim, and explain the difference between compound and simple indexing.
Read the worked answer
The rider is compound, so the benefit grows geometrically:
- $12,000 × 1.03^5 = $12,000 × 1.15927 ≈ $13,910 per month
- A simple 3% adjustment would give $12,000 + (5 × 0.03 × $12,000) = $12,000 × 1.15 = $13,800
Close at five years - a difference of about $110 a month. The gap widens badly over a long claim:
- At 10 years, compound: $12,000 × 1.03^10 ≈ $16,127
- At 10 years, simple: $12,000 × 1.30 = $15,600
- At 20 years, compound: ≈ $21,667 versus simple $19,200
Why it matters for a 47-year-old: a disability claim can run to age 65, so the compounding base keeps working for nearly two decades. Note also that the rider raises the benefit, not the premium after issue - but the insurer priced that growth in at underwriting.
Judgment point: COLA riders reduce the initial benefit the same premium can buy. For a high earner with other assets, a larger unindexed benefit may beat a smaller indexed one; for a long-claim risk, the rider is usually worth it.