Richard Lishman explains what you need to know about income protection.
Finance management has been more important than ever for many people of late. Whether your income was unaffected or you experienced a period with no money coming in at all, you will have almost certainly reviewed your financial situation in light of the pandemic. Protecting your livelihood wherever you can will have become a priority. Part of this will involve checking or strengthening your income protection.
Why it’s important
Income protection is a form of health insurance whereby you receive an income should you find yourself unable to work due to sickness, injury or accident. At a time when everyone’s health is at a higher risk than it once was – especially for those with underlying health conditions – this is even more important than ever before. Getting sufficient protection in place will provide invaluable peace of mind that your basic living expenses will be covered and your family kept safe in the event that you were unable to work for a prolonged period of time. In general, policies insure up to approximately 65 per cent of your gross salary or your net profit for self-employed associates, though monthly caps will likely apply. Any payments received are tax-free.
What to look for
One of the most vital areas to review is the section of your policy relating to exclusions. It is crucial to know what your income protection does not cover, rather than focusing on what it does cover. Some plans on the market have as many as 15 exclusions, which commonly include excessive alcohol, pregnancy and dangerous activities such as mountaineering or scuba diving. (They also never include redundancy.)
It is important to check that your policy is protected from inflation, so that you will receive a fair pay-out in the event that you have to make a claim, protecting your standard of living. The policy should also run to your retirement age and include HIV cover. In addition, look at the deferred period – where possible, select day one cover so that your income is protected even when you have just a single day off. Finally, though perhaps not a priority right now given the travel restrictions in place, it is beneficial to ensure that your policy provides worldwide cover, meaning that you don’t have to return to the UK to make a claim.
Another feature to understand is whether an income protection policy operates on guaranteed rates or reviewable rates. The former involves a set fee for the duration of your policy – regardless of how many claims are made – making it the better option for peace of mind and simpler budgeting. Reviewable rates usually mean that your premium amount changes after five years of set payments according to your claim history. While this would be advantageous for those who rarely make a claim, the nature of the beast is that you won’t know when you may need the support. If you were to make a claim, your future premiums would very likely increase.
All of this is underpinned by what criteria must be met to make a claim. It is highly recommended to select an ‘own’ occupation policy, which will provide cover based on your inability to work as a dentist. Some plans might stipulate a ‘suited’ by training, education or experience criteria, which will only cover you if you cannot perform an alternative role and some will even state ‘any’ occupation – which should always be avoided!
Of course, this is not an exhaustive list and criteria for income protection should always be tailored specifically to the individual.
Does Covid-19 affect income protection?
In the current times of Covid-19, it is necessary to understand exactly how your income protection affects any situation related to the pandemic. Though policies will vary, most will not cover any periods of self-isolation. As these tend to be only a couple of weeks, the impact on individuals should not be too significant. Should you become infected with the virus and are unable to go to work due to illness, most policies should honour a claim.
Check it before you need it
Unfortunately, many people don’t realise any discrepancies in their income protection policy until it’s too late. Given the fragile state of the country and our health right now, it’s never been more important to check the fine-print and to make sure you and your family will be protected if you were left unable to work. The experienced team at money4dentists can help review your existing policy or find a new solution that will afford greater peace of mind.