When planning for their financial future, all dentists must make a few important decisions.
What should I do to increase my pension savings?
– Which mortgage is best?
I have sold my practice. What do I do with the capital?
Some dentists neglect to include income protection, also known as income replacement coverage and permanent insurance.
It’s worth noting that some dentists know the value of this type of insurance, and they decide to forgo it.
They may have enough assets to cover their expenses if something happens. They may be willing to accept any consequences and take all risks.
If you agree, I don’t see any problem with that.
What about those who are willing to take control of their lives and buy income protection?
What companies offer income protection to dentists?
How do you select the best plan?
What are the small print?
Where can I buy cover?
Today’s goal is to help you find the right place to start. I also want to give you advice on who to contact if you have any questions. You may need to make sure that your cover is properly set up, even if it’s already in place.
Background
Before we get to the details, let’s briefly examine the purpose of income protection insurance.
You will be able, in the event that you are successful with your claim, to continue paying all of your monthly living expenses, including the mortgage. Income protection benefits will not be taxed and you can only cover up to 60% of your gross income (net profits if you are self-employed).
It is worth noting that older policies can provide coverage up to 75% for gross income.
If you are disabled or unable to work, you can claim the benefits.
The insurance company will pay you until your return to work, retirement or death.
Many of the top banks and insurance companies offer income protection plans. There are also smaller providers you may not be familiar with.
Only a few policies are appropriate for dentists at one time.
It is important to remember that the market is constantly changing so policies that are suitable for dentists today might not work tomorrow. You should be aware of any changes in the small print. If you have coverage, the provider may not be able to modify the original policy.
The cost of your insurance is determined by your age, health, and, with certain providers, your sex. Therefore, the earlier you buy the policy, the lower your premium. The market rates for income protection can also vary from year to year.
The most important thing to remember is that income protection, unlike other types of insurance, doesn’t encourage you to shop around every year. It’s crucial that you do your research before purchasing coverage. Once it’s in place, it’s best to leave it there for the long-term.
For example, if you had coverage for five years, then you need to replace it, the new insurance will likely be more costly as you get older. You will also need to declare any health problems that you may have experienced since the purchase of your original insurance.
Exclusions could apply to new coverage, or the monthly premium might increase. In this case you may choose to keep the current coverage even though it may not be the best for your needs.
Let’s take a look at some of the most important areas you need to be aware of, in no particular order.
Definition of occupation
When considering a claim, insurance companies will evaluate how sick you are.
There are three main definitions for disability:
– Your own occupation; your claim will only be considered if you are unable to perform the duties of a dentist.
– Benefits would not be payable if the insured company found you incapable of performing a job like research or another similar one.
You can claim for any occupation. As you might guess, you would have to be very ill in order to claim this definition.
It is easy to determine that the preferred definition of disability for an individual with a job is their own occupation.
All occupations are rated by insurance companies, so you won’t have to pay more if you want your own occupation coverage. Some insurance companies offer a specific occupation for dentists, while others do not.
Watch out for situations where an initial claim is assessed based on your occupation. However, after 6/12/24 month of receiving benefits, the insurance company changes the definition to suit.
Guaranteed Rates
Coverage is usually paid on a monthly billing basis.
There are two types available: guaranteed or reviewable premiums.
The former will typically require you to pay a fixed amount for the first five years. The insurance company will likely review the matter based on their claims experience. This includes how many claims they have paid and what they expect to happen in the future.
The monthly premium could therefore increase, although it could theoretically decrease. The next step is to have reviews every five years or annually.
Guaranteed premiums will usually result in a slightly higher initial premium. The premium will remain the same until you have your coverage extended, usually 60 or 65 years. Your claims experience does not affect the amount you pay to insurance companies.
While not all companies offer guaranteed premiums, you should still consider them when doing your research.
NB No matter what type of premium you pay, your coverage (and premium) will increase annually with inflation.
Exclusions
There are many exclusions that providers may not pay claims. It is important to be aware of when they will and won’t pay.
There are some common exclusions: alcohol abuse, pregnancy (where complications don’t arise), and drug abuse.
Exclusions may be added to your coverage if you engage in dangerous activities such as skydiving or mountaineering. If you are involved in dangerous activities, such as skydiving or mountaineering, your coverage may not cover you if you become incapacitated while performing these activities.
Exclusions may be made if you have any existing health problems. You will usually pay a higher premium if you smoke. You may be able notify your insurance company within 12 months to request a reduction in your premium. The insurer may also consider eliminating any exclusions.
Additional Factors
Make sure your insurance policy includes the following:
– HIV coverage, including needlestick injuries
– The policy’s end-of-life date can be used to draw your NHS Pension/retirement date (usually 60-65).
– Worldwide coverage; can you claim benefits even if your are not in the UK? This is especially important if your plan to move overseas or return to your home country.
– Inflation protection to ensure that your coverage does not lose its purchasing power. Most providers permit you to increase your coverage by using the Retail Prices Index, or a certain percentage.
Many dentists prefer day-one coverage over a deferred period.
You will likely be eligible for NHS sick pay if you work in the NHS hospital system. Therefore, you won’t need to begin coverage until 26/52 weeks.
Also:
– Claims are paid tax-free
– You may be covered by some providers for up to 60% of your earnings while others will only cover half.
Personal income protection policy(ies), premiums do not qualify for tax relief
Many providers publish their claims data now. You should request to see the most recent statistics. You should then be able get an idea of their approach to claims.
– This figure is for self-employed workers. It does not include your gross earnings. This figure can be found in your accounts
It is possible to trade as a limited company if you were previously self-employed, or trading as part of a partnership. Some providers will cover your share of the company’s profits. They believe that you have completed an administrative exercise and that your turnover will remain the same as before. While some providers won’t cover your salary, others will.
It’s important to check if your coverage will be affected if you already have it. You wouldn’t want bad news to come up during a claim.
Which provider?
There are many plans on the market, as we have already mentioned. Dentists’ Provident Society is one of the most popular providers. You can choose from a variety of plans including day one coverage. You can also increase your monthly investment into the available investment element. You get the money back (plus any potential growth) without income or capital gains tax upon retirement.
It will depend on your individual circumstances as to whether you are able to invest more money through this method. There are many investment options that you can consider, as you might expect.
Other providers offer guaranteed premiums but do not provide day one coverage.
It is not practical to reveal who these providers are as the market can change quickly. Send me an email if you’d like to find out. This way, you will always have the most up-to-date list of options to choose from.
We have found that almost all dentists will accept either of these:
Day One Cover
– Day One Cover plus a Guaranteed Premium Plan (plans will be compatible).
– Guaranteed premiums plan(s)
It is important to make sure that your cover meets all of the above requirements.
Get Help/Advice
Sometimes, a little knowledge can prove dangerous. It may be wise to seek out a specialist to help find the right coverage. You can contact a variety of financial planners/advisors to assist you.
They should be:
– Offer choice from the “whole market”. They are not tied to any particular product provider, and can choose from any provider. Some advisers may be multi-tied and not have access to all providers.
– Provide a special service for dentists and have extensive experience in dealing with financial planning issues.
Many firms can claim specialist status, so you should be able find one wherever you are located. However, just because they are specialists doesn’t mean they will be the ‘whole market’.
– Provides the option of paying for their services by commission or fee
Financial Tips Bottom Line
I hope that you will be more informed about the important issues when buying income protection. It is one of the best and most responsible decisions you can make.
Do not leave it up to chance. It’s just too risky!
POINT OF ACTION
Now is the time to look at your income protection policies, and make sure they cover the areas mentioned above. Send me an email if you have any questions or need help.