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 when you come to calculate 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. If you limit cover to only your essential financial outgoings 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.
The Importance Of ‘Own Occupation’ Cover
There are three main 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.
Policy Features Specifically For Doctors
Some insurers offer features specifically for medical professionals which include:
- No HIV exclusions if you contract it through a workplace incident
- NHS sick pay mirroring, allowing you to extend your deferred period and save money by working alongside the length and amount of sick pay you get from the NHS.
- Sabbatical cover, where you can ‘pause’ the policy if you decide to work, study or volunteer abroad
NHS Sick Pay Mirroring
If you are a newly qualified or junior doctor with the NHS, your sick pay entitlement will increase with every year of service – usually up to 6 months full pay and 6 month half-pay after 5 years of service.
LV’s Doctors & Surgeons Income Protection Cover, for example, will pay out reduced Income Protection benefits when you stop receiving your full sick pay from the NHS to top up your half sick pay.
This happens regardless of how long you have set your deferred period, which means that you can set your deferred period as long as 12 months and significantly reduce your premiums without sacrificing insurance coverage.
When your NHS sick pay stops entirely and your deferred period ends, LV will begin paying out your full Income Protection benefits.
Some providers also accommodate sabbaticals by allowing policyholders to take breaks of up to 2 years from their policy. This time can be used to study or work abroad, where policyholders will still be covered as long as they have a UK bank account.
If you move to anywhere in Europe, USA, Canada, Australia or New Zealand and certain other industrialised nations, you can keep your payout on a long-term basis.
If you move anywhere else in the world your benefit will be limited to a maximum of 26 weeks if you need to claim before you’ll have to return to one of the listed countries for medical assessment to continue with the claim.