Basic Financial Planning and income protection

 

 

Protecting your income at a time of illness. Find out about the type of insurance policies which most GPs are currently using.

LIFE ASSURANCE  

 

The NHS Pension provides generous Death in Membership lump sum benefits equivalent to twice the member’s superannuable income. In most cases this will not be enough to support a family and repay debts. Hence the need for Life Assurance, in the form of a  lump sum or regular income payable in the event of death within a specified term. Benefits are normally tax-free and can be used for:

• Family protection to maintain the family's standard of living and aspirations
• Mortgage protection to clear or reduce an outstanding mortgage debt
• Inheritance tax planning to provide funds via a trust to help pay any inheritance tax liability

Life assurance policies fall into two main categories:

1. Protection policies designed to provide cash (tax-free) in the event of death only.
2. Investment policies to provide cash in the future, not just in the event of death, as the result of regular savings.

Trusts  

 

Life Assurance benefits should normally be written under Trust to ensure that the life assurance benefits are paid to the right person(s) quickly and without the need for probate, outside the deceased’s estate, making the payment usually free from inheritance tax.  

 

Action Point:  Are your existing life assurance contracts placed under a suitable trust?  

 

CRITICAL ILLNESS COVER (CIC)

 

CIC provides a capital sum in the event of a policy holder being diagnosed with a qualifying critical illness (usually a limited list of common significant conditions). While this money can be used for any purpose it is normally recommended to use it to protect a mortgage or other debts.

 

Action Point: Are any outstanding loans/liabilities properly protected?

 

 

INCOME PROTECTION

 

While we never imagine that 'it could happen to us', anyone can be struck by an accident or long term illness at any stage in their career. Statistics show that under the age of sixty-five, we are more likely to develop a long term disability than to die, so income protection insurance can be more important than life assurance.

 

The NHS pension scheme provides ill health retirement benefits; however, these are minimal in the early part of your career and will never fully replace your income, even after many years of service. As your earnings potential is your greatest financial asset it is important to protect this against illness or accident. As you consider this area of your financial planning you should be aware of the following issues:

 

An Income Protection Plan (IPP) is designed to pay an income in the event of a policyholder suffering from an illness or injury, whether permanent or not, that results in a loss of earnings.

• It pays a tax-free income in the event of a policyholder being unable to work in their chosen profession, as a result of illness or injury
• It should normally commence payment when a salary or practice drawings reduce or cease
• It continues to be paid until the policyholder is fit to return to work, or the insured’s normal retirement age, whichever is earlier
• It can supplement any NHS ill health pension. Benefits payable under an income protection plan may be reduced if the plan holder is also in receipt of an NHS ill health pension  

Points to Consider:

• Definition of Illness
• Definition of occupation (Own, Any or Suited)
• Practice agreement
• Level of cover (How much benefit is required?)
• NHS ill health retirement benefits (What level would you receive?)

Action Point: Would your existing income protection arrangements be adequate, to replace your income and continue to support your family’s current standard of living?

 

Locum Cover

 

Locum insurance provides a regular income after a waiting period (usually 4 weeks) for a specific period (usually 12 months after incapacity).  Monies would normally be used to employ a locum doctor while the member is off work sick. Premiums qualify for tax relief.

 

What does the PCT Provide?

1. Superannuable income may continue to be paid for up to 12 months providing medical services continue to be provided for patients.
2. PCT Locum Allowance for up to 12 months subject to residual list size and other factors.

It is for this reason that many partnership agreements terminate partnership if a partner has been off due to illness for more than 12 months.

 

Locum Protection Insurance – General Key Points

• Cover should dovetail with your Practice Agreement
• Do not over insure, as cover is expensive!
• Benefits are taxable but the cost of a Locum is tax deductible
• Income Protection Plan (IPP) already in place
• Locum Costs vary between areas and with supply & demand
• PCT support varies across the country
• Current Locum Costs are £2,500+ per week

Provided courtesy of Kelvin Turner from Medical Money Management wwww.mmmnet.co.uk

Medical Money Management is authorised and regulated by the Financial Services Authority