Income Protection For Dentists - How To Choose The Right Policy (Part 1)

All dentists have a number of important decisions to make when planning their financial future, such as:

- Should I invest more into pensions?

- What is the best mortgage available?

- I've sold the practice - what do I do with the realised capital?

Unfortunately, some dentists forget to put in place what is probably the most important component of their financial jigsaw: income protection (which is also referred to as income replacement cover and permanent health insurance).

Now, it's also worth pointing out that some dentists are well aware of the importance of the benefits of this form of insurance and decide against insuring themselves.

It may be that they have sufficient assets in place to live off if the worst were to happen and their income ceased the next day. Or perhaps they have decided to take the risks firmly on their own shoulders and are prepared to suffer any consequences.

If that applies to you, then providing you have considered all the facts I can't see a problem with it.

But what about the majority who want to take responsibility for their situation and purchase income protection cover?

- Which companies offer income protection for dentists?

- How do you choose the right plan(s)?

- What small print do you need to watch out for?

- Where do I purchase cover from?

My aim today is to point you in the right direction so that you will know exactly where to start and who to approach for more advice should you need it. Even if you have cover in place already, you may want to check that it has been set up correctly.

Background

Before we get into the nitty gritty, let's briefly look at the purpose of income protection insurance.

The main benefit is that, in the event of a successful claim, you will be able to sustain all your monthly living costs such as the mortgage. Any income protection benefit will be paid to you tax free and the maximum you are able to cover yourself for is approximately 60% of your gross income (net profit if you're self-employed).

It's worth mentioning that some older policies provide cover up to 75% of gross income.

You are able to claim if you are ill and unable to work.

The insurance company will then pay you until you return to work, retire or die, whichever is the earlier.

There are a number of income protection plans available (over 30) to purchase provided by many of the leading insurance companies and banks, as well as some smaller providers that you're probably not that familiar with.

Only a handful of policies are suitable for dentists at any one time.

One important point is that the market is quite dynamic so a policy that is suitable for a dentist today may not be appropriate tomorrow. The small print can change so you do need to watch out for any changes (if you have cover already the provider is unable to alter the original policy).

As the cost of cover is based upon your age, health and with some providers, your sex, the earlier you purchase the lower the premium. Another factor is that the market rates for income protection do vary year to year.

Perhaps the most important factor to remember is that, unlike some forms of insurance where you are encouraged to shop around every year, with income protection it's vital you take the time to do as much research as you can before you purchase cover as once it's in place it's recommended that you leave it for the long term.

If you did, for example, have cover for 5 years and then replace it the new cover is likely to be more expensive as you will be older. In addition, if you have had any health issues since you purchased the original cover you will need to declare them.

The result is that exclusions may apply to the new cover or the monthly premium may increase (in this situation you may decide to retain the current cover, even if it is not the most appropriate for your needs).

In no particular order, let's look at the key areas that you will need to consider:

Occupation Definition

Insurance companies will assess how ill you are when considering a claim.

There are 3 main definitions of disability:

- Own occupation; your claim will be assessed on your inability to perform your duties as a dentist

- Suited by training education or experience; benefits would only be payable if you were unable to do a job such as research or a similar one proposed by the insurance company

- Any occupation; as you might have guessed, you'd have to be quite ill to qualify for a claim under this definition - you have to be unable to perform any job

It's fairly easy to work out that the 'own occupation' definition of disability is the preferred option.

Insurance companies risk rate all occupations, therefore you won't necessarily pay a higher premium to obtain own occupation cover. It's simply the case that some offer own occupation for dentists whereas others don't.

One definition to watch out for is where the initial claim is assessed on own occupation terms, however after 6/12/24 months of you receiving benefit the insurance company alters the definition to suited.

Guaranteed Rates

You will normally pay for cover on a monthly basis.

There are two types of premiums available; reviewable or guaranteed.

With the former, you will usually pay a set amount for the first 5 years. At this point the insurance company is likely to review this in light of their overall claims experience, which includes the amount of claims they have paid and their prediction of what may happen in future years.

Therefore, the monthly premium may increase (in theory, it could also decrease). Thereafter, reviews will take place annually or every 5 years.

With guaranteed premiums, you will normally pay a slightly higher premium at outset. You will then pay the same amount until the date the cover is set up to, normally 60 or 65. The amount you pay the insurance company is not affected by their overall claims experience.

Not all companies offer guaranteed premiums but you should certainly consider them during your research.

NB You will normally have your cover (and premium) increase with inflation annually regardless of the type of premium you are paying.

Exclusions

Many providers have a number of exclusions where they will not pay a claim, so whilst it's good to know when they will pay it's as important to know when they won't.

Some common exclusions include alcohol abuse, pregnancy (where complications do not arise) and drug abuse.

If you are involved in dangerous sports, such as mountaineering or sky diving, exclusions may be added to your cover. Therefore, you would not be able to claim in the event of being unable to work if you had an accident whilst performing certain activities.

Lastly, if you have existing health issues exclusions may also be applied. Note that if you are a smoker you will normally pay a higher premium. If you do stop smoking you may be able to notify the insurance company after 12 months and ask for a premium reduction (you may also be able to ask the insurer to consider removing any other exclusions).

In Part 2 we will look at the additional factors that you should consider.

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