Richard Lishman is a partner in money4dentists, members of the The Association of Specialist Providers to Dentists (ASPD).
Many people feel that the cornerstone of financial planning is income protection cover, as unless you have this protection, generally you donâ€™t get paid if you are unable to work due to an accident, sickness, or injury. The main benefit is that your standard of living can be maintained in the event of a claim. Any benefits are paid tax-free and continue until you return to work, retire or die, whichever is the earlier. The maximum you are allowed to insure for is approximately 65% of your gross salary (net profit for self employed).
At any one time there are over 50 income protection plans available in the marketplace offered by many insurance companies and banks. The market is also very dynamic, with only some plans competitive for dentists. Seemingly innocent changes to the small print can make a contract uncompetitive for dentists. For example Liverpool Victoria has recently changed it terms on income protection for dentists from own occupation to suited occupation (after 26 weeks), making it unsuitable for dentists in our opinion.
You may well have already set up income protection cover (often known as Permanent Health Insurance) so if you want guidance as to whether it set up correctly, the following tips might help.
There are three specific areas that should be included in your cover:
All insurance companies base claims on how ill you have to be prior to any benefit being paid. ‘Own’ occupation definition of disability means that you will receive your claim based on your inability to perform your duties as a dentist. Many plans carry a ‘suited’ by training, education or experience definition. Here the benefits would be paid only if you were unable to perform an alternative role, such as research or working for a pharmaceutical company. ‘Any’ occupation plans should be avoided at all costs. As the wording suggests, you will have to be very ill/injured not to be able to carry out any job whatsoever!
In our opinion own occupation will provide you with the most comprehensive cover.
You will usually pay for your cover on a monthly basis. There are two methods in which this premium can be paid, either on guaranteed rates or reviewable rates.
Reviewable means that you pay a set amount for your cover for the first five years. Thereafter the insurance company can increase (or theoretically also decrease) your premium based on their overall claims experience. This is derived from the number of claims they have paid out and the prediction for future claims. Reviews normally take place every five years, however they can be annual. Reviewable rates effectively put the insurance company in charge of future premiums – an ‘open cheque book’ approach.
Guaranteed means that you pay a set amount for your cover over the duration of the plan (usually to age 60). This rate can never change regardless of how many claims you have or the company has in general.
Based on these facts, you may wish to consider guaranteed premiums.
Whilst it is vital to find an income protection provider that has a consistent history of paying claims on time, it is perhaps more important to check when they will not pay. These are known as exclusions. Some of the worst plans on the market include as many as 15 exclusions. Common ones include failure to seek medical advice, excessive alcohol, pregnancy (normal-complicated pregnancies may be covered) and dangerous activities such as mountaineering or scuba diving. Note: the latter will depend upon frequency and heights/depths involved.
Always read the small print to find check which exclusions apply to your plan(s).
You should also include the following with your cover:
- Worldwide cover – so you don’t have to return to the UK to claim
- HIV cover – this should typically be covered if infected at work, due to a needle stick or sharps injury
- Inflation protected – to make sure your standard of living is protected from inflation
- Deferred period – ideally this should be Day 1 cover so if you have 1 day off you still get paid
- The plan should run to your retirement age – for obvious reasons!
Whilst the above may be appropriate for many dentists it should be considered on an individual basis. In general one plan cannot cover all the above considerations so typically to ensure you have comprehensive cover you may need at least two income protection plans.
If you’d like some more information please call us on 0845 345 5060 or email us.