How Does Income Protection for Doctors Work?
There are several personal and policy factors that you must consider before setting up Income Protection. These will all have an impact on the cost of cover.
How Much of My Income Can I Insure?
With most insurers it is possible to insure between 50% and 70% of your gross (pre-tax) personal earnings as a maximum. However, you may not need to insure yourself for the full figure.
Doing so will naturally increase the cost of Income Protection and if you can cover only the essentials premiums will be cheaper.
It’s important to note that you don’t usually need to worry about your benefit being taxed. With a personal plan the monthly premiums are paid from post-tax income and so any payout is paid tax-free.
What is the Deferred Period?
When setting up Income Protection, you will need to select a deferred period, which is the length of time you will need to be unable to work in order to begin claiming your benefits.
Setting a longer deferred period can bring the cost of your policy’s premiums right down, so it makes senses to set to avoid a short deferred period if you don’t need one.
It is important that you check your employment contract to understand how much sick pay you are entitled to. For NHS doctors and surgeons, sick pay entitlement usually rises with length of service.
This means you can match your doctors sick pay entitlement to your Income Protection policy and only have the Income Protection kick in when necessary after the sick pay ends.
When Should I Set My Policy’s Cease Age?
This refers to the age at which your policy will end.
It is usually set to a point in the future where you won’t need the cover anymore, generally because you’ll have retired and have other vehicles to fall back on, such as pensions.
The higher you set the cease age of the policy – some insurers will allow you to set the cease age as high as 70 – the more expensive cover will be, so it pays to think carefully about how long you’ll truly need protection for.
How Long Should My Claims Period Be?
While a short term insurance policy will reduce your premiums, it may not provide the cover you need.
Aviva reported that the average Income Protection claim length they saw in 2017 was 4 years 33 weeks. In comparison, a typical Short Term Income Protection policy will pay out for a maximum of 1 or 2 years.
Meanwhile, Long Term Income Protection will continue paying benefits right up until you reach retirement age if you’re so unwell you can never work again.
This means that if you develop a debilitating medical condition that prevents you from working, you can claim for as long as you need to with no worry that you will be forced back into work before you have completely recovered.
Which Premiums Should I Choose?
There are three types of premium options to consider when choosing Income Protection Insurance:
- Reviewable premiums
Can be ‘reviewed’ as the insurer sees fit, which means that they may rise in cases where the insurer has seen a spike in claims or based on economic factors.Such premiums will start out cheaper but are then reviewed upwards and often therefore work out more expensive over the life of the policy.
- Age-banded premiums
Age-rated premiums also tend to work out cheaper to start off but then rise each year. Unlike reviewable premiums, age-banded premiums can only rise by a preset amount laid out in your policy.These increases are solely linked to your age and the growing risk of you claiming as you get older.
- Guaranteed premiums
There are usually a little more expensive initially, but the insurer cannot adjust them over the life of the plan unless you yourself make any changes to the policy.This generally means guaranteed premiums work out cheaper over the life of the policy, especially if you took out cover when you were young and healthy, as premiums are locked in from the start and can’t change with time.
Why Doctors Need Income Protection With ‘Own Occupation’ Cover
There are three main different definitions of incapacity that insurers use to decide whether or not you are unable to work:
- Own occupation
Covers you in your specific job role. If you can’t do the day-to-day activities involved in your job due to accident or sickness, you can make a claim on your Income Protection policy.
- Suited occupation
Covers you only if you can’t do your own occupation or any occupation that you’re suited to. So for example while a surgeon with a hand injury couldn’t be a surgeon, they may not be able to claim because they’d still be well enough to teach medicine.
- Any occupation / work tasks
The most difficult definition of incapacity to claim on, you’ll only be able to claim if you’re so disabled you can’t work in any job or perform a set series of task crucial to most jobs, such as signing your name.
How Do I Make a Claim?
James, a doctor from Manchester, has taken out long-term Income Protection covering 50% of his gross earnings, equating to monthly benefits of £3,000.
When taking out his policy, James agreed to a deferred period of 12 months because that is how long he will be able to claim sick pay.
Needing to claim…
Some time after taking out his policy, James suffers a type of cancer and he takes leave from his work to recover. During the first 6 months of being out of work, James receives the full amount of sick pay he is entitled to from his employer.
At this point, James submits all of the medical evidence necessary and a completed claims form to back up his claim.
After this initial 6 months of full sick pay (in line with the NHS’s sick pay scheme), his sick pay benefits are reduced to half pay.
Despite his policy’s deferred being 12 months and James being only 6 months out of work, his Income Protection provider is notified that James is claiming reduced sick pay and begins paying out his Income Protection benefit to top up his income.
Paying a claim…
6 months later, James’s sick pay officially stops and he reaches the end of his Income Protection policy’s deferred period.
A month later, James receives his first full Income Protection benefit of £3,000. James is able to continue claiming Income Protection benefits until he finishes his treatments and is given the all-clear from his doctors to return to work.
As James took out a long-term policy, it would have been possible for him to continue claiming Income Protection benefits right up until his retirement age if necessary.