A Dentist's Hands
Dr. Priya, 52, is an endodontist earning $240,000. Her individual disability policy pays $7,500 a month, has a 90-day elimination period, defines total disability as inability to perform the material duties of her own occupation for the first 5 years and any occupation thereafter, and carries a residual disability rider paying a proportional benefit for income loss of 20% or more. She paid the premiums with after-tax dollars. Her practice's group LTD pays 60% of base salary to a $15,000 monthly maximum, 180-day elimination, any-occupation after 24 months, with a Social Security offset; the practice pays the premium. After a hand injury and surgery she cannot perform root canals but can do exams and administrative work, and starting in month 5 she earns $150,000 a year.
1. What does the individual policy pay beginning in month 4, and how do the total-disability and residual definitions interact?
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Elimination: 90 days, so benefits begin in month 4.
The definition decides the amount:
- Duties-based own-occupation reading. She cannot perform the material duties of an endodontist (root canals). Under a purely duties-based definition she is totally disabled as to her own occupation and collects the full $7,500/month, even while doing exams and administration.
- Work-status reading. Many policies require that the claimant not be at work in the occupation for total disability. If hers does, she is not totally disabled and the residual rider applies:
- Income loss: ($240,000 − $150,000) ÷ $240,000 = 37.5% - comfortably over the 20% threshold
- Residual benefit: 0.375 × $7,500 = $2,812.50/month
What to check in the form: whether total disability requires absence from work; whether the policy says a claimant working at reduced duties is evaluated under the residual provision; and whether it pays the greater of the total and residual amounts (some do). Don't stack them - residual is normally an alternative, not an add-on.
Also verify: the 'prior income' measurement period (usually the 12 months before disability - her $240,000 base, not a bonus-inflated figure), whether the income loss must result from the same injury, and whether the individual policy has any group offset (it does not unless she bought one, which matters below).
2. When does the group LTD start, what does it pay, and is the benefit taxable? Does the Social Security offset actually reduce anything?
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Start date: 180-day elimination, so benefits begin in month 7 - three months after the individual policy.
Amount: 60% of base = 60% × $20,000/month = $12,000/month, inside the $15,000 cap.
But the definition gates the payment. For the first 24 months many group plans use own-occupation; she cannot do endodontics, so a benefit may be payable. Because she is working, most plans apply a proportional/residual formula: 60% of lost monthly earnings = 60% × $7,500 = $4,500/month, then subject to an all-source cap (commonly 70-85% of pre-disability earnings) applied across individual benefit + group + Social Security.
Taxation: the practice pays the premium, and the employer takes the deduction, so the group benefit is ordinary income to her - no §104(a)(3) exclusion. The individual policy was bought with after-tax dollars, so its benefit is income-tax-free. That asymmetry matters: $7,500 tax-free is worth far more than $7,500 taxable.
Social Security offset: an offset only operates if she is awarded SSDI. SSDI requires inability to engage in substantial gainful activity; at $150,000 she is far above the SGA threshold and will not be approved. So the offset reduces nothing today. If she later stopped working and was awarded SSDI, the group benefit would be reduced by the SSDI amount and possibly by family benefits, and the all-source cap would then bind. Two-stage answer: no offset now, real offset if she stops working.
3. What changes at month 60, and what should a 52-year-old specialist have bought differently?
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At month 60 (five years of disability, measured from the start of disability, not from policy issue) the individual policy converts to an any-occupation definition. 'Any occupation' typically means any occupation for which she is reasonably fitted by education, training and experience. She can examine patients, teach, consult, do utilization review, or run a practice - so she would likely fail the any-occ test and the individual benefit stops, even though her income never returns to $240,000. The group plan reaches any-occupation at 24 months, so both policies converge on the same gap from month 60 onward.
What the design should have included for a specialist at 52:
- A longer or lifetime own-occupation period (to age 65, or true own-occ), and a definition that does not require her to stop working
- A COLA so a 5- or 10-year claim doesn't erode
- A residual rider that pays without a prior total-disability period, and that survives the shift to any-occupation
- A future increase option exercised as income rose, and a benefit sized to specialty income - $7,500 on $240,000 is only about 37% of gross income, before tax
- A supplemental individual policy to offset the taxable group benefit and the group's 24-month any-occ trigger
One more trap: confirm whether the residual rider continues paying after month 60 under the any-occ definition, and whether there is a return-to-work or recovery provision that reduces the benefit as earnings recover.