Should you be safeguarding your salary?
In life it’s important to always consider your finances carefully. This is especially true for people who are self employed, such as dentists, as these individuals often don’t have the safety net that a traditional business structure can provide should they suddenly become unable to work for a period of time.
Whilst there are multiple options available for professionals in this position, one particularly effective way to guarantee your income is Income Protection.
Why should you get Income Protection?
As dentists are continuously exposed to a steady flow of people throughout the day who may have illnesses, they are at a high risk of becoming unwell and needing to take days off.
However, as dentists come under the self-employed status this means that taking time away from work does not entitle them to an income. Whilst this is hardly going to be a disaster if only a couple of days of absence is required, for extended periods of time it is necessary to protect your income so that you can retain your standard of living.
Accidents and critical illnesses are unpredictable, and you never know when these misfortunes can strike. As such, the old adage ‘better safe than sorry’ is a clever way to think about your finances, especially if you have a family to support or other significant financial responsibilities.
What Income Protection means for you
Like many policies, Income Protection remains at the core a straightforward concept that can have a multitude of differences depending on the supplier. It is a type of Health Insurance that is designed to pay you an income in the event of you being unable to work due to sickness, injury or accident. Typically these policies pay you tax-free benefits, and these payments continue until you are able to return back to work, retire or pass away, depending on which of these come first.
Typically, you can insure a maximum of 65% of your gross income. However, for self-employed people, this percentage applies to your net profit (your income after all tax deductibles etc.).
Whilst this may sound simple to begin with, the difficulty with Income Protection policies is that they have become a highly competitive market, and therefore even the smallest difference between policies can make a big impact.
When can you claim?
Every Income Protection policy will be different in terms of how ill you have to be in order to file a claim. ‘Own’ occupation claims are arguably the most appropriate as they will pay out if you are considered unable to fulfil your role as a dentist. Other policies may have ‘suited’ restrictions. These effectively mean that even if you cannot perform your duties you may be unable to claim if you can still perform tasks associated with your role, such as research or working for a pharmaceutical company. Lastly, a third type of policy exists – ‘any’ occupation plans. These plans are best avoided as claims cannot be made if you can perform any duties at all, meaning that you would need to be entirely incapacitated by illness or injury in order to make a claim.
Guaranteed or reviewable?
The majority of policies will require monthly payments, however, there are two different ways that the rates can be paid depending on the type of agreement you take out. Reviewable policies mean that individuals pay a set amount of cover for a period of time (five years or so) and after this the insurance company will review your case to see whether rate adjustments are needed. These adjustments will be made based on on how often you have claimed during your set rate period and how likely they believe you will be to claim in the future. Therefore, depending on your circumstances, your rates may increase significantly (though theoretically these rates could decrease too).
Alternatively, policies with guaranteed rates have a set price that will remain the same for the duration of your insurance regardless of how many claims you make – meaning that these are likely the best option.
Perhaps one of the most important things to be wary about when looking at any type of Income Protection is the exclusions these policies may have. Exclusions effectively mean that the insurance will not pay out under certain circumstances, and some particularly dastardly policies can have multiple hidden in the small print. Common exclusions include any injuries sustained whilst under the influence of alcohol, injuries received whilst doing dangerous activities such as scuba diving and even, in some cases, pregnancy.
Therefore, it’s important to always have advice about what policy you choose, making the help of an Independent Financial Adviser (IFA) indispensible. The IFAs at money4dentists are particularly suitable for helping you decide on Income Protection, as they have years of expertise working solely with dental professionals.
For more information please call 0845 345 5060 or 0754DENTIST.