Income Protection For Dentists - How To Choose The Right Policy (Part 2)

In Part 1 of How To Choose the Right Income Protection Policy, we looked at:

- The background to how income protection works

- Occupation definition

- Guaranteed rates

- Exclusions

Let's wrap it up with the other factors that you need to consider.

Additional Factors

You should check that your cover includes:

- HIV cover, included for needlestick injuries

- Ceasing age of the policy to tie in with drawing your NHS Pension / retirement date (usually 60 - 65)

- Worldwide cover; are you able to claim benefits if you're not in the UK (especially important if you are planning to move abroad or return to an overseas home)

- Inflation protection, so that your cover retains its purchasing power. The majority of providers allow you to increase cover by the Retail Prices Index or a set percentage

- Deferred period, many dentists prefer day one cover.

If you are working in the NHS hospital system you will probably be entitled to NHS sick pay therefore you will not need cover to start until after 26 / 52 weeks

Also:

- Claims are paid to you tax-free

- Some providers will cover you for 60% of your earnings, whereas others will only cover 50%

- Tax relief is not available on personal income protection policy(ies) premiums

- Many providers now publish their actual claims data, so you should ask to see their latest statistics. This way you should be able to get a feel for their approach to claims

- If you are self-employed it's the net profit that you should cover, not your gross earnings from the practice. This figure will be available from your accounts

- If you used to be self-employed or trading as a partnership and are now trading as a limited company the situation is not as clear. Some providers will allow you to cover your share of the company's profits. Their view is that you've performed an administrative exercise and expect that your turnover will continue to be similar as before. Other providers will only cover your salary whilst some others will allow you to include any dividend payments.

If you have cover in place already and have incorporated it's crucial that you check whether your cover will be affected. I'm sure you wouldn't want to find out bad news at the time of a claim!

Which Provider?

As mentioned, there are a number of plans available in the marketplace. One of the most well known providers is Dentists' Provident Society. They offer a number of plans, including day one cover. Another feature is that you are able to increase your monthly contribution into the investment element that is available. This money is returned to you (plus any potential growth) free of income and capital gains tax on retirement.

Whether you should invest more money via this method will depend upon individual circumstances. As you'd expect, there are a number of investment alternatives available that you should also consider.

There are other providers that offer guaranteed premiums, however day one cover is not available with their plans.

As the marketplace can change at short notice, it doesn't make sense to publish who these providers are at the time of writing. If you would like to know then just drop me an email and I'll let you know. That way you'll have the up to date list to choose from.

Our experience is that most dentists will apply for either:

- Day one cover

- Day one cover plus a guaranteed premium plan (plans will dovetail with each other)

- Guaranteed premiums plan(s)

As mentioned, even if you have cover in place it makes sense to ensure it ticks all the boxes mentioned above.

Getting Help / Advice

It's sometimes said that a little knowledge can be dangerous, so it may be prudent to use a specialist to help you find the right cover. There are a number of financial planners / advisers that you can approach to help you.

You should ensure that they:

- Provide choice from the 'whole of the market'. In other words, they are independent from product provider and can choose from any product provider. Some advisers are tied or multi-tied so will not have access to all providers

- Offer a specialist service to dentists and are experienced in dealing with the financial planning needs of dentists.

There are a number of firms that can claim this specialist status so wherever you are based you should be able to find one (however just because they are specialist doesn't guarantee that they will be 'whole of market')

- Offer you the option to pay for their services via fee or commission

The Financial Tips Bottom Line

My wish is that after reading Parts 1 and 2 you'll be more aware of the key issues to consider when purchasing income protection cover. If you think about it logically, insuring the continuation of your income (due to illness) is one of the most sensible and responsible decisions anyone can take.

Don't leave it to chance; it's just not worth the risk!

ACTION POINT

Take the opportunity now (whilst it's in your mind) to dig out your income protection policies and check whether they tick the main areas covered above. If you're unsure (or don't have the time), just drop me an email and we'll try and point you in the right direction.


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Ray Prince is a fee based Certified Financial Planner with Rutherford Wilkinson ltd, and helps UK Resident Doctors and Dentists plan to achieve their financial objectives. Just visit http://www.medicaldentalfs.com to request your free retirement planning guide. Rutherford Wilkinson ltd is authorised and regulated by the Financial Services Authority.