Beginning your final year of dental school can be a big step, as it’s when you start to see yourself working as a dentist. During this final leg of your studies, you may hear (or have already heard) the term ‘income protection’. So, what is it exactly? And why should you think about it?
In this article, our very own Sami Gadzinska sat down with Karen Watson-Brown, a Specialist Financial Adviser from Wesleyan Financial Services, to get the lowdown.
Sami: Hi Karen, thanks for taking the time to chat to us today. The first thing readers will probably want to know is what income protection (IP) actually is?
Karen: Hi Sami, thanks for inviting me here today. Income protection is a personal plan that someone takes out and pays for themselves. There’s no tax relief on the premiums, but at the same time, there’s no income tax to pay on the benefit if or when it pays out.
In a nutshell, it is a plan that pays out every month when you’re off sick based on your earnings, and it stops when you either go back to work or you retire. Unlike life policies where a lump sum is paid, income protection gives you a regular monthly income which will pay out for either a set number of years, or until retirement age.
You can choose for it to pay out either a level sum (which may not be advisable as the cost-of-living continues to rise), or it can be indexed so that it will increase each year to keep up with inflation.
Sami: Why should young dentists think about IP sooner rather than later?
Karen: The short answer is that ill health and accidents can strike anyone at any age. Even if you work within the NHS, an organisation that has a reputation for good benefits, your sick pay may not cover your whole period of absence.
If you’re an NHS practitioner working in a dental practice, you will receive sick pay from week four to 26 of your absence (in other words, six months), and then it will stop. If you’re working in a private dental practice, you won’t receive anything. This means that if you are absent from work due to sickness, your income will stop.
Those working in community dentistry or in a hospital are employed by the NHS, so will be entitled up to six months’ full pay followed by six months’ half pay. However, this sick pay entitlement needs to be accrued, so you will only receive that entitlement after you’ve worked for the NHS for over five years.
So, if you don’t need to pay rent or a mortgage after six months, you’re unlikely to need income protection. But, if like most people you’ll need to continue paying bills, it’s a good idea to make sure you’re covered.
Sami: What would your advice be for young dentists, or those graduating next year?
Karen: My advice to young dentists who are considering IP is to take it out as soon as possible – and for the maximum amount. Although you may not feel like you need the maximum amount as your bills aren’t that high, the IP is underwritten on your age at that time. If you leave taking it out until you’re older, it will cost more as your chance of illness will have increased with age.
I always recommend the maximum amount rather than setting it at a level that only covers your bills. It’s good to allow for unforeseen expenses, such as your car breaking down. If you don’t factor this in at the beginning, how will you cover that extra expense?
Another benefit of IP is that because it’s something you pay for yourself (rather than an employment benefit), there are no tax, national insurance of pension contributions to be deducted from it. And because you’re not working, your student loan repayments will stop too.
Sami: Which types of cover should dentists look for?
Karen: If you’re thinking of taking out cover, it’s wise to look for a plan that offers you flexibility. In other words, a plan that increases your cover to keep up with inflation, but that also allows you to reduce this if you wish – much like what is offered through Wesleyan.
You should also look out for cover that you can take a break from. This means you stop paying the premiums in certain circumstances, and then restart them at a later date.
For example, if you are on maternity leave, you’ll get maternity pay for six months. You can take up to a year off, but you wouldn’t be earning for all of that time. In this case, your income protection wouldn’t pay out. So, you might as well suspend it and begin it again when you go back to work. This allows you to save on your premiums while you’ve dropped down to maternity pay.
It’s also worth bearing in mind that you can take a carer’s leave of absence for a year to look after someone. You could also take a sabbatical for up to two years (as long as your employer agrees you can return), or a career break for up to five years.
Career breaks are limited to five years because of retaining your registration with the GDC. So, look for a plan that will cover these types of options if you think they may apply to you.
Sami: Thanks Karen – this is great information. Are there any final thoughts you would add?
Karen: If possible, it’s in everyone’s best interests to get you fit and well enough to be able to go back to work as soon as possible. Some IP policies, like income protection from Wesleyan, offer other benefits that could help you do that.
If it’s appropriate, you could be referred to services like physiotherapy, osteopathy and chiropract. If you would benefit from psychological support, you could receive treatments including Cognitive Behavioural Therapy, counselling and psychiatry.
You might also have access to return-to-work services and, if you were no longer able to work as a dentist, vocational services that could help you look at potential new work options.
Sami: Perfect. It sounds like it’s really worth looking at the detail of the IP cover offered and picking a plan that will fit with your current and possible future circumstances. Thanks again Karen – it’s been great chatting with you.
Limits, exclusions and charges do apply. Full terms and conditions of the policy and cover, including the policy benefits and exclusions, will be contained in the Policy Wording and Policy Summary. Risk must be acceptable to underwriters at normal term.
Wesleyan Financial Services is a broker. Insurance products are provided by a number of selected insurers.
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