Peter Nelson, age 36, and Connie Nelson, age 34, are married with 2 children, Robert, age 4, and Mary, age 2. Peter is a senior executive with Mega Corporation where he has an extensive benefits package including an endorsement method split-dollar life insurance plan, group disability income insurance, group long-term care insurance, group term life insurance ($70,000), nonqualified deferred compensation, stock options, group dental and vision insurance, a Section 401(k) plan, and group medical expense insurance.

Connie has a middle management administrative position with the local school district. She also enjoys a generous benefit package from her employer, including medical expense, dental, vision, group term life, and disability income insurance. The principal benefit to Connie is the dependent care assistance plan offered by her employer. She takes Robert and Mary to a dependent care program on her way to work and picks them up on her way home. Also, she is working on her MBA degree under her employers educational assistance plan.

Peter and Connie have an HO-3 homeowners policy on their home in the amount of $200,000, adequate coverage on their 2 autos, and a personal liability umbrella policy (PLUP) for $2 million. They have accumulated an emergency fund of $12,000 and a deferred variable annuity in the amount of $125,000, which are both jointly owned.

Peter and Connie are concerned that if Peter dies prematurely, adequate funds would not be available to provide his dependents with income until Mary is age 18. Peters current net pay is $3,900 per month, whereas Connies monthly net pay is $2,600. They estimate the survivors would need about $5,500 per month to maintain their current standard of living in the event Peter dies. The Nelsons believe they can earn an aftertax yield of 8% annually on their investments and inflation will average 4% per year.

Question. Under Peters group disability income insurance plan, the definition of disability that provides the most favorable protection for Peter would be one that defines disability as:

1. the inability of the insured to engage in any occupation.
2. the inability of the insured to engage in his own occupation.
3. the inability of the insured to engage in his own occupation and not working in any gainful employment.
4. the inability of the insured to engage in any reasonable occupation for which he is or might easily become qualified.