New associates: are your earnings safeguarded?
I have in recent weeks been contacted by a number of dentists starting their first self-employed position in practice who are concerned about their income protection cover.
All too often the insurance policy that is suitable during foundation training defaults to a standard, and less than adequate, income protection policy. To help associates understand what type of cover is available and what features are important, here’s a summary of the key components of income protection.
Dentistry is a physically and mentally demanding job and, as such, having occupation-specific cover is vital. The last thing you want is to find out in the event of a claim that while you can’t practice dentistry, your insurer deems you fit enough to seek alternative employment.
Dentistry is seen as a relatively high-risk profession and there are a limited number of insurers that will cover dentists on an ‘own occupation’ basis. Ensure you seek advice on which insurers cover your profession. Policies provided through internet search engines and high street banks are usually not occupation specific.
The ‘right’ level of cover
Insurers will generally set a maximum level of cover, often 50-60% of your gross income. This limit is designed to be a disincentive to being off work and ensures that if you claim you are still better off financially if you return to work. It is, however, worth noting that in the event of a claim, benefits are paid free of income tax.
The most common mistake is to be underinsured. The standard level of cover during foundation training tends to be £300 per week, which is loosely based on a maximum of the foundation training salary (circa £30,000 per annum). An income uplift of £20,000-£30,000 is not uncommon in the first year of self-employment.
With associate pay averaging at least £50,000, a level of cover nearer to £600 per week is more appropriate.
The ‘deferred period’
Do you need your cover to start straight away in the event of ill health? While immediate cover policies are common they often aren’t necessary and can be expensive. Deferring your cover in the event of a claim means that you would have to be unable to work for a period of weeks before claiming.
A deferred period of eight or 13 weeks is typical among associate dentists. While some NHS sick pay may be available this is not a long-term solution as claims are limited to a period of six months. In any event this will only be payable in respect of income from NHS dentistry and not private fee income. Take care to choose a deferred period that suits your financial position.
The sooner you apply the better
As with most health-related insurances, the cost of cover is based on age, meaning the younger you are at the point of application the lower your premium will be. The cost of cover escalates steeply the older you are.
Another aspect to this is the likelihood of policy exclusions later in life. The longer you leave it the more likely an instance of ill health will occur and then be subsequently excluded from future claims. If you apply while in good health and later develop a medical condition, the insurer is duty bound to continue to insure you.
Income protection is sometimes known as permanent health insurance (PHI) for this reason.
Guarantee your premiums
Policies tend to be offered on a reviewable or guaranteed basis. While some reviewable policies might meet your criteria of being occupation specific, you should be aware of the future rise in cost due to age or a general review of premiums. Locking into a guaranteed premium as soon as possible may be advisable.
Applying for cover through an adviser will result in the same premium as applying direct to the insurer. So taking advice is advantageous.
If you signed up for your existing cover without looking at the alternatives, perhaps as a student or during foundation training, then a review of your policy is certainly advisable.
For more information visit www.pfmdental.co.uk.
Jon Drysdale will give a mini-lecture entitled ‘NHS pension and Lifetime Allowance’ at 4pm in theatre two on Thursday 22 October at BDIA Dental Showcase.