Over the next couple of blogs we will pick up on each area of personal financial planning and why it’s important to keep it reviewed. We will start with income protection.
In the current economic climate it is more important than ever to ensure your finances are up to scratch, especially the protection areas of financial planning.
We recommend that all consultants review their financial circumstances at least annually, whether this be a meeting with an adviser or a quick chat on the phone. This is time well spent ensuring products have competitive charges and still meet with expectations.
Many protection policies are now cheaper than they were years ago, and as circumstances change the levels of cover required alter as well. This may mean a need for more cover if income and commitments have increased, or indeed sometimes amounts of cover need to be lowered if the children aren’t dependent or there are no costly school fees to cover. Many of us unwittingly risk our lifestyles by having inadequate, inappropriate or expensive policies.
Income protection provides a tax free income in the event of illness or incapacity if unable to work through illness or accident. There are limits on how much cover a consultant can have but private practice income can also be insured as well as NHS income.
Most consultants will have six months full pay and six months half pay from the NHS if incapacitated (providing they haven’t had a break in service for longer than one year in the past five years) and income protection can be dovetailed into these benefits. Many consultants will have first taken out income protection when they were a junior doctor; since then income and circumstances will have changed, not to mention the changes in April 2008 in the NHS Pension Scheme, with particular regard to retirement through ill health, which now means that most doctors who may need to claim on it in the future will be significantly worse off.
Income protection comes in two types, guaranteed and reviewable. A guaranteed policy provides certainty as premiums are fixed at outset, although premiums and benefits generally rise with inflation each year. Reviewable plans are generally cheaper at outset but are subject to periodic changes in premiums, often every five years when companies assess whether the premium being paid is sufficient to provide the cover. If the answer is ‘no’, then costs can rise significantly. Guaranteed policies are therefore preferred by most as they offer more security.
Not all companies will cover consultants for their own occupation, so choosing the correct company not just on cost but on their terms and conditions is paramount to try to ensure that any claim will be paid.
Justine Roberts is a director of Medical & Financial, which provides independent financial consultancy to doctors. Contact her at Justine@medicalandfinancial.com, or visit www.medicalandfinancial.com for more information.