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 a generous lump sum gratuity 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, 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 outstanding mortgage debt.
• Inheritance Tax Planning to provide funds via a trust to help mitigate inheritance tax liability upon death.

Life assurance policies tend to fall into two 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, but as a result of structured savings.

Critical Illness Cover

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.

 

Income Protection (Permanent Health Insurance) PHI

While we never imagine that 'it could happen to us', anyone can be stuck by long term illness at any stage in their career. Under the age of sixty-five you are more likely to develop a long term disability than die, so income protection is as important as life assurance.

 

An income protection plan is designed to pay you an income in the event of you suffering from an illness or injury, whether permanently or not, that results in a reduction or loss of earnings.

• It pays you a tax free income in the even of you being totally unable to work in your chosen profession, directly as a result of illness or injury.
• It should commence payment when your salary or practice drawings reduce or cease.
• It can supplement any ill health benefits provided by your occupational pension scheme.

Ideally, it should pay an ongoing income, to your chosen retirement age which is selected at the outset, or until you can resume your own occupation.

 

The NHS pension scheme provides ill health retirement benefits, however, these are minimal in the early part of your career and will never replace your income even after 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:

 

Permanent Health Insurance (PHI)

Provides a regular income after a waiting period (deferred period) to a pre-determined age (normally age 60) or until you return to work. Benefits are tax free.

 

Points to Consider:

• Definition of Illness
• Definition of occupation (Own or Any)
• Practice agreement
• Level of cover (How much cover is required)
• NHS Ill-health Retirement Benefits (What level would you receive?)

 

Locum Cover

Provides a regular income after a waiting period for a specific period (usually up to 12 months after incapacity).  Monies would normally be used to employ a locum doctor while the member was off work sick. Fortunately, premiums qualify for tax relief.

 

What does the PCT Provide?

1. Superannuable income 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 may partnership agreements terminate partnership if a partner has been off for > 12 months.

 

Locum Protection Cover – General Key Points

• Cover should dovetail with your Practice Agreement
• Do not over insure, as it is expensive!
• Benefits are taxable unless a Locum is employed
• Income Protection (PHI) Cover
• Locum Costs vary between areas and with supply & demand
• PCT support varies across the country
• Current Locum Costs are £2,400+ per week (in 2008)

 

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