Income protection should be an essential cornerstone of financial planning. Wesleyan Medical Sickness answers some key questions about income protection policies.
Q: Why do I need income protection?
A: As a doctor, you know better than most that people do sometimes fall ill and are unable to work for long periods of time.
If you were left without a regular income for a sustained period of time, you could struggle to manage day-to-day living costs and stay on top of debts. Rent, mortgages and other bills, will still need to be paid, and could soon mount up.
The BMA has estimated that newly qualified doctors could graduate with debts of at least £37,000. This is considerably more than a junior doctor's basic salary, so if you fell ill at this stage of your career, you could be particularly exposed financially as debt repayments won't just disappear, although student loan and tuition fee repayments will be frozen if your income is below £15,000.
Q: How does income protection work?
A: If you are diagnosed with an illness or injury that means you are unable to work, you will be able to claim on an income protection policy and continue to receive an income. This will be a regular tax-free payment at, typically, around 50% of your gross pre-incapacity earnings. Most income protection plans pay out until you return to work or are no longer suffering from a loss of earnings, for example if you start receiving a pension income, you reach the maximum age for the policy or you die.
Q: Why do I need income protection if I receive sick pay?
A: You may initially be covered by NHS sick pay, depending on how long you have been working. A junior doctor in their first year of service is eligible for just one month's full pay and, once they've completed four months' service, an additional two months' half pay. This will gradually build up over time but will still only cover basic salary and won't include other elements that can significantly increase your regular take-home pay, such as salary band uplift. Even consultants are only eligible for a maximum six months' full pay and six months' half pay.
Therefore you could find yourself living on less than half your regular take-home pay. An income protection policy however is generally based on your full earnings, not just your basic salary.
If you were to rely on only the State for help once NHS and statutory sick pay runs out, you could be entitled to a maximum of just £96.85 Employment and Support Allowance a week.
Q: What should I look for in a policy?
A: Make sure you choose a plan that suits your particular needs. You may have savings or a partner's earnings to help cover the loss of income and this will have a bearing on the level of cover you require.
It is also important to check whether the policy is specified 'own occupation', meaning you will still receive an income even if you could do another job apart from your own. Some policies offer an 'any suited occupation' definition, which means they won't pay out if you can't do your own job but could carry out other types of work based on your knowledge and experience.
The period of time between you being unable to work and the payments starting is also an important factor to consider as you will want to ensure there are no gaps in your income. You can opt to defer income payments for an amount of time that suits you and, in general, the longer a deferred period, the cheaper your income protection policy will be.
Income protection is important because the right policy can ensure you maintain the level of income you received before sickness or injury. The amount of protection required depends on your own circumstances and lifestyle requirements and while there are a wide range of products available, not all will match your particular needs, so choose carefully. It is sensible to take professional advice to ensure you find the right cover for you, leaving you neither over- nor under-insured.
For more information or for specialist financial advice contact Wesleyan Medical Sickness on 0808 100 1884 or visit the website at www.wesleyan.co.uk/doctors.