Dentists Who Invest Podcast
Official Podcast of the Dentists Who Invest platform. Talking all things investing, money and finance with a dental spin. Have you ever wondered how you can grow your wealth and protect your hard earned money as a Dentist? We've got you covered. Featuring famous guests such as Andrew Craig, Edward Zuckerberg and Benyamin Ahmed we delve deep into EVERY aspect of finance to educate and empower ALL Dentists.
Dentists Who Invest Podcast
Is Life Insurance Worth It? with Warren Robins
Need to review your Income Protection?
Connect with Warren here: https://www.dentistswhoinvest.com/income-protection/
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With the help of life insurance expert Warren Robins, discover the keys to making wise decisions. Life insurance is frequently complicated, which might influence people to make decisions that aren't always in their best interests. We go over important ideas like whole-life insurance and term assurance in this episode which will help you comprehend how life insurance rates change over time and how decision-making can be influenced by our innate optimism bias.
Imagine a future where your family’s financial security isn’t left to chance with a lump-sum payout. Discover the advantages of annuities and income replacement policies that offer a consistent financial safety net, as opposed to lump-sum policies that require careful management. Warren helps demystify the emotional influences of life insurance marketing, explaining why income replacement policies might be the peace-of-mind solution you’ve overlooked. We also discuss how using trusts can ensure your life insurance benefits reach the right beneficiaries without unnecessary delays.
Don’t fall into common misconceptions about life insurance. We highlight the importance of seeking expert advice, especially when securing coverage early to lock in favourable premiums. Learn how to avoid over-insurance and tailor your policy to your specific needs. Tune in and take control of your financial future by making smart, informed life insurance choices.
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Disclaimer: All content on this channel is for education purposes only and does not constitute an investment recommendation or individual financial advice. For that, you should speak to a regulated, independent professional. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. The views expressed on this channel may no longer be current. The information provided is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. If you are unsure about the suitability of an investment, you should speak to a regulated, independent professional.
All right, we are live once again on the Dentists Who Invest Facebook group. Thank you everybody for joining us this evening, and everybody who's going to watch this on catch up as well. We're here to talk about life insurance with my good friend and very knowledgeable insurance expert, mr Warren Robin, and here's what we like to do on these podcasts and just in general on Dentists Who Invest. We like to debunk the misconceptions that there are whenever it comes to this stuff. And, Warren, would you agree with me that there is a lot of marketing that is hmm, how can we say this? What's in that? What's the nicest way I can say this but also give people a little bit of an idea that's going on? I think a lot of the marketing out there is biased towards specific products and specific things, whereas if we give everybody a bird's eye view, it can literally save you a fortune.
Warren:yeah, absolutely yeah, without a doubt. I think dubious was the word you're looking for, so there was.
Dr James:Yeah, we could have had some fun there, couldn't we? There was a few words we could have played around with there. But yeah, dubious is another word, certainly, well, Warren. Anyway, Warren needs no introduction because he's been on the podcast and on the Facebook group a few times. Anybody who's on the Facebook group wants to ask any questions. Or if anybody's in this live Zoom this evening wants to ask any questions, feel free to pop them in the chat, because we want to make this interactive in a Q&A, aiming for about the 30-40 minute mark to make this bite-sized, so we don't go on all evening. So, heads up on that everybody. We want to have an interactive conversation, a bit of back and forth. So if anybody has any questions they'd like to ask, not just about life insurance but in general, well, this is a great opportunity to do so. Warren, let's jump straight in life insurance. Can we start by really dumbing it down and just explaining what that is, because I'm not even fully certain that I know yeah, yeah, that's a good question.
Warren:So, um, life insurance is is probably the most simple of all the insurances you can get. Um, you know, there's literally one definition of being dead. So if you have a life insurance policy and you get to the point where you can't steam up a mirror, so you're dead, um, the life insurance policy will normally pay out the. There are certain exceptions for new life insurance policies in the first 12 months. So if you decide to take this policy out and kill yourself, in the first 12 months, most insurers won't pay out um, which is not unreasonable.
Warren:Um, within that, you've got two versions. You've got a term assurance, which is the sort of thing you're get. If you have a mortgage and it's a 25 year mortgage, you take out a 25 year policy to match your mortgage. So there's a term to that. The other variety is whole of life, where you have a policy and you just keep paying it until you your dying day, and as long as you keep paying the policy, it will pay out eventually dying day, and as long as you keep paying the policy, it will pay out eventually. Unsurprisingly, the whole of life policies are much more expensive because the insurer is not taking a gamble that they're going to pay out. If you keep paying your premiums and you die, they're going to pay out. So whereas term assurance, there's a pretty good chance you're going to survive the term.
Dr James:So it's a much cheaper product you know what, from talking to you about insurance, Warren has made me realize that it is a flipping rabbit hole. There's a lot to it and you know what it's actually. I tell you what you taught me and you showed me about that world how much difference it makes between actually getting a good deal and getting a not so good deal like it's huge, especially how the fees scale with time yeah, with the index policies, if you, if you have a policy that's going to be increasing each year and it's not unusual to see that then you're in a similar sort of situation that you are with income protection.
Warren:Because with income protection the cover goes up pretty much every year for most policies if they're going to be a long-term policy. And how quickly that premium goes up pretty much every year for most policies if they're going to be a long-term policy, and how quickly that goes up compared to the, you know premium goes up compared to the cover. You're in the same equation. So some will go up much faster than others. So it's not all about starting premium if you have increasing cover. So you've got to be careful on that.
Warren:But yeah, it's getting the cover set up correctly is probably the most important thing, because it's easy just to just instinctively do what you think. If people are going to take out a mortgage, what they normally do is if they do it themselves, they'll think got a mortgage, let's get some life insurance to pay off the mortgage, maybe a bit of critical illness cover, and that's as deep as they go. And the reason they tend to not go any deeper than that is because human beings have a massive optimism bias, so pretty much nobody yeah, we all do almost nobody actually sits down and thinks, okay, I'm going to take this seriously, what happens if I die?
Warren:let's look at the the impact, and the reason for that is this is this human optimism bias. So we think good things will happen to us. So, yeah, we will do the euro millions lottery. The odds on winning that jackpot is 140 million to one. So that's enormous. Um, and we sort of fantasize what we'll do with the winnings when we buy our ticket and we check it out thinking, oh, have I won? Okay, so 140 million to one.
Warren:The odds buying on being struck by lightning in the next 12 months, if you live in the uk, are about one in one and a half million. So you're actually probably about 90 odd times more likely to be struck by lightning in the next 12 months. So you are to win the euro millions jackpot. Um, so, but we never. So we, because we have that belief in the positives and the bad things won't happen to us. One in two people get cancer in their lifetime. But everybody says it won't be me, gonna be somebody else. So that's everybody's and you know, we feel it in our core it won't be me, it's going to be somebody else, and that's a 50 50. So so we have that massive bias, which is why when people, most people when they look at life insurance by themselves, they don't really seriously think it's going to happen. So, as a consequence, they don't really seriously look into the consequences.
Warren:Um, and if you just take a life insurance policy, pay off the mortgage that often is is not enough. Um, because if you've got somebody who's a major breadwinner in a household say, the major earner's only taken home five grand a month and their partner is taking home £1,000 and they've got a two and a half grand mortgage, fantastic. If the major breadwinner dies, the mortgage is gone, two and a half of your outgoing is gone, but you've lost five grand of your income. So there's a two and a half thousand pound a month deficit. So how's that deficit going to be met? And maybe it won't be a two and a half grand, maybe two grand, because some of the expenses of losing somebody are going to go. There's less food, maybe another cargo, but there's still going to be a big deficit. And people don't tend to think that through. Um and oops hello, always put your phone on silent.
Dr James:There's a tip there that was a bit of a jump scare, yeah, so um, slightly destruction there.
Warren:But yeah, essentially, um, you need to think about is is there a need for income replacement? Um, and people never do, and, and that is one of the big issues, if people do it themselves, they just go get rid of mortgage. Life is good, but it won't be. And people have lost their homes. Even though the mortgage has been paid off, they've had to downsize because they can't keep up with the bills, and that does happen. So, which is where, if you get advice, hopefully someone is going to sort of say to you right, do that analysis. Do you need an income replacement if you die? And often, if there's a major breadwinner, a significant difference in the earnings between the two people in a relationship, the answer will be yes. So you then come into the equation of right. So how do you, how do you fund that deficit? So, and there's two options. Any idea what they would be?
Dr James:Ah, you're going to have to help me out on that one.
Warren:Okay. So option one thing that most people think about if they think we need some extra life cover, they'll just take a lump sum level lump sum. So they'll have a look at it and say, right, I think and generally it'll be based on a gut feeling they go right, we're going to have a quarter of a million pounds, because that's a nice big lump sum, so we're going to have that to replace the income if someone's dead, because then that'll sort us out. But if you've got two and a half grand a month deficit and that's over maybe 25 years of children growing up, if you do the maths on what that actually means, that might be a thousand pounds a month. So If you do the maths on what that actually means, that might be £1,000 a month. So it won't be enough. So the easier way to work it out is you can get life insurance policies that pay out a regular monthly sum Not particularly well known outside the advice market, often referred to as family income or family income benefit policies and you can get a policy that will pay out a regular monthly sum on death. I have one. Um, it's a great thing because for me, the reason I've gone down that route rather than lump sum is because it's much easier to work out a lump sum sorry, a monthly income that you need so and that increases every year by the by whatever the cost of living goes up by. So it maintains its buying power. But the real reason I prefer that option is it's not so much cost, because they are cheaper to start with than an equivalent lump sum. It's more about if I'm not here. I can guarantee that and my policy runs to my youngest son at the age of 23. Um, my thinking is, if I'm not here, I want to make sure there's a debt-free home for the family and the bills are going to be paid paid until my children are finished tertiary education if they want to go down that route. So that's why I've set my cover up that way. And if you have a lump sum, it could be spent too fast, it can be stolen, it could be misinvested, things can happen to it, whereas if you have a monthly income, it's going to come in into the bank account every single month, guaranteed, can't be spent too fast, can't be blown, can't be stolen. It's just going to keep coming in. So there's 100 peace of mind that there will be money available to pay the bills, um, and when my children have reached the age where they're finished their education and they're working, if they want to move out, then my wife can downsize and sort of go to smaller property if she can't afford the bills, or if the children are still here, then they can chip in and help towards the bills. So that's the you know. But some people take that up to the end of the mortgage or they might take it to retirement. So there's loads of variables. But that is one option.
Warren:Now if and that's probably the two things you consider if you're, say, a sole trader as a dentist, now if you're working through a limited company, you then have a third option and it's sort of a variable on the lump sum. So you can take a lump sum and pay it through the business. If you run a limited company. It's called a relevant life plan, it's an allowable expense into the business, so it's tax efficient, the payout is tax free and there's no benefit in kind on the premium. So it's it's a great thing to have. So if you're limited company, um, it's a great idea. So, um, you know, and probably with the tax efficiency it's going to be the cheapest option, um anyway, because you get effectively discount on the um on the premiums that you're paying and no benefit in kind and no tax bill on the payout. So a great bit of kit. So that's a really good recommendation as an option if you want to take some additional family protection and you've got your own limited business.
Dr James:Understood. Well, here's how I line you. I would have presumed you know the second. One of the three that you described is kind of like an annuity is what was going in my head. Do you know what I mean?
Warren:Yeah, yeah it is. It's sort of. It's in a way sort of your income protection is your income replacement on illness. So the family income benefit version is almost like a death version of income protection. So you think income protection is a good idea Then, and normally you'd cover your mortgage within that amount. Then the family income replacement option is on death. You can almost say, well, whatever you want for your income protection monthly benefit, just take off the mortgage payment because that will be replaced anyway, and maybe you sort of look at the difference for family income policy.
Dr James:Well, there you go. I mean I would have. So yeah, that's what was going in my head. It sounds similar-ish to an annuity.
Warren:Yeah, it is a really good analogy actually, because it does effectively a similar job.
Dr James:And for anyone who doesn't know an annuity, well, we won't get into fully what it is this evening. It'll probably take quite some time, but effectively what it is is a payout or continuous remuneration for the rest of your life. Is what an annuity is in a nutshell. Continuous remuneration for the rest of your life is what an annuity is in a nutshell, which we will cover another time in full depth how that works. But that it's. It's very much an investing thing or something that you can how can I say, invest your whole life and then potentially exchange your collection, your your wealth, for annuity which will an annuity plan which someone will back. So that's basically what an annuity is. Um, for any but one. I would have just gen. I genuinely would have thought that they all work like that, but actually only very few, and ones that you have to get through an advisor. Is that correct?
Warren:you. You can take them out yourself, you know, direct to an insurance company, but pretty much nobody's ever heard of them.
Dr James:Um, really, I would have thought they all worked like that. That's my ignorance.
Warren:No, most insurance policies are lump sums. You have the level of policy if you just want a sort of a guaranteed amount, um, if you have a mortgage, you have a lump sum but it's generally decreasing. If it's a repayment mortgage, yeah, and most of the people I speak to and these I tend to speak to intelligent people because most you know, the majority of my clients are doctors, um, and doctors, um, and you say, oh, there's a policy that pays out regular monthly income if you die and pretty much everybody will go. Oh, I've never heard of that. Um, there you go, because you know a lot of people. If they do it themselves, yeah, the insurance companies don't push them, um, as a general rule, um, and in my experience a lot of you of your average mortgage advisor doesn't. If you get a good mortgage advisor that knows their stuff, they'll talk about it. But the most common solution I see from sort of inexperienced mortgage advisors would be just have a decreasing life and predict your honest policies to cover your mortgage and you're sorted. Jobs are good.
Dr James:Do you know what? What, though? Because here's the thing if you get a lump sum, and that can be loads of money, and I guess it looks really good in terms of advertising, I guess, and it makes people's jaws drop and what have you but if you get a huge amount of cash, then you have to get into this whole separate, you know, understanding of what you're actually going to do with that cash in terms of investing it. There's all these subtle layers to it versus something that's just going to continuously pay you.
Warren:Exactly that, and that, for me, is probably the major reason why I went down the income replacement rather than the lump sum, because it's just simpler, it just de-risks it. The whole point is, insurance is about peace of mind. So if I'm not here, I want to know that my family's looked after and, in very simple terms, and if it's a lump sum and that has to be budgeted and spent at a certain rate, then there's risk associated with that. So, and studies have shown, um that if you give the average person a large sum of money, I think they spend it in something like seven years.
Warren:Um, and various lottery winners and, going back in the day, the pools winners, have demonstrated that they get a big sum of money and they start spending a rate on the basis that we'll just go mad for a bit, we'll just buy this, we'll just have the holiday, um, and we'll slow down and we'll ease back a bit. And they don't. They never slow down and they run out of money. You see, with sort of ex-professional footballers, they retire with millions in the bank and then 10 years later they're bankrupt. So it's very difficult if you start spending at a high rate to then throttle back, so so that that's the risk. So if you have that, there's a risk. If you just have the income, it's guaranteed it's going to be there. It's inflation proof, it does the job and it's just guaranteed to be there. And for me that's the most important thing.
Dr James:I see, ok, cool. Well, there's kind of a little bit of a hint there. If the companies don't push them so much, it probably means they're a better deal for the client. Reading between the lines probably means they're a better deal for the client. Reading between the lines Because generally you know from a business perspective you wouldn't push something as much that you don't make as much profit on. Is that fair to say?
Warren:That's a really good question. I've never got to the bottom of why they don't. I think it's because no one's heard of it. If they advertised it, no one's probably going to know what it means, or very few people. So they're probably going to be wasting their advertising spend. So they probably know the things that people are familiar with and focus on, on pushing those. So you know, if you see the adverts with the, you know the lady drinking a coffee cup and the children it's like best dad. Um, you know, they don't even go into detail so they just sort of go on emotion rather than specifics really with it, with the marketing. So, um, so yeah, I don't think they ever get into the technical stuff. Everybody, everybody advertises on emotion and buys on emotion. You know the days of where they tell you how many mpg a card has gone.
Dr James:It tends to be some sort of an emotional thing they're trying to do and I think insurance has gone the same way it's so true that's a very powerful thing to know when you're being marketed to actually is that most people buy an emotion and back it up with logic. So a lot of marketing is a motive. But here's the thing I think sometimes we can be too cynical about marketing too, especially us Brits. We're one thousand percent guilty of that, right, and here's the thing. Here's that actually the whole.
Dr James:It's good to know what I just said, that you're that you can't. You're sort of subtly being showing these messages that are attempting to elicit an emotive reaction. But here's another thing to remember if you're too cynical about marketing, lots of the time those products can actually help you to motivate, like they can actually make your life better. So if you get put off by marketing, well, you actually might be missing out on some good stuff as well. Just throwing that out there, we're going on a little bit of a tangent, but it was just out of interest, more than anything else yeah, yeah, absolutely.
Warren:And you know, if you have people who would financially suffer if you die, then I guess get to the crux of the question this was about is life insurance insurance worth it? Then I would argue very strongly that, yes, life insurance is 100% worth it. But if you are a single person, you've got no dependents and there's no one who's going to financially lose out if you die, then I would say you could make a strong argument that no, life insurance isn't worth it at that point. That no, life insurance isn't worth it at that point. However, the counter to that can be if you believe you're going to have a future need for life insurance, then you know getting life insurance when you're as young and fit and healthy as possible is actually a good way to make savings.
Warren:Because my oldest son is 18. And just a couple of weeks ago I've bought him a life insurance policy. So £5 a month 30-year term gets him about just shy of £290,000 with a life cover. Now that is locked in. So he'll have that for the next 30 years and that's locked in at that ridiculously low price. That's all right. So even though technically he's got no need for that life insurance policy at the moment. I'm pretty damn certain within 30 years he will be in a position where he'll probably be married with children, and then that will actually be massively valuable to him. And it's costing him well. I'll probably just keep paying it. It'll cost me peanuts.
Dr James:Wow, okay, fair enough, keep paying it. It'll cost me peanuts. So wow, okay, fair enough.
Warren:so um, so yeah, so it's not necessarily. You know, I wish I was that smart when I was younger, because I waited till I actually sort of had kids to get insurance in place, or at least my wife was pregnant so, and at that point I thought I've got to act like an adult.
Dr James:So, um, at that point I thought I'll take the chance.
Warren:But, uh, catches up with all of us, doesn't it eventually? Adulting catches up with all of us, doesn't it, Warren? It does eventually.
Dr James:Adulting catches up with all of us. I can testify to that one as well. Warren, here's an interesting thing that you actually told me once as well. You know, whenever it comes to the broker's role in the whole setting up the policy and what have you, they actually get remunerated from the insurer's side, right? So it actually costs nothing more to have a conversation with someone who's a broker and you'll probably get a better deal yes.
Warren:Um well, there's a yes and no answer to that as well so there are two sorts of insurance broker.
Warren:so I've got access to a wide range of insurers and if I arrange a policy, I get what is the I could refer to as the baseline commission, and if somebody takes an insurance policy through me, they'll pay exactly the same premium as if they go direct to the insurance company. Now, I think that's a minority these days of brokers in the UK. The majority, I believe and I think from what I've read it's a reasonably big majority work off a smaller panel of insurance companies, and the reason they do that is because by restricting their business to maybe four, five or six insurers, they get a higher commission rate. To maybe four, five or six insurers they get a higher commission rate, but the premiums are therefore what they call loaded. So the extra commission is paid for by the premiums being increased by around about 10% to 15%. So if you go through a broker who's working off a restricted panel, they will earn more money, but you will pay 10 or 15 percent more on your premiums.
Warren:Um, so you'll pay more than going direct to the insurance company. So one of the key questions if you are looking to get advice from a broker, ask them are they on a restricted panel. If the answer is yes, ask them do they have a load of premiums? If they? If the answer to that is yes, then the response is thank you and goodbye, because I don't know that wow, people don't tend to again um, and they're not.
Warren:they have no obligation to tell you that, um, because when they offer the advice you, they have to offer the advice from the insurers that are available to them and as well as being a more expensive premium because they're, they're loaded due to the higher commission they may not even have access to the lowest cost insurer for any individual because they work off a smaller panel, so it could be a double whammy.
Dr James:Jeez, let's take what you just said and run with the the thought process behind it, as in things that people miss and they don't know. Yeah, that was a, that was a golden nugget right there, one to watch out for. Is there any other biggies that people often miss or don't know?
Warren:yeah, I think probably the most common issue you have when people set up their own insurance is they'll take out a single life policy and they'll set it up, get it approved, start it and, as far as they're concerned, everything's good. Now the issue with that, which is sort of hidden in the background, is that if you have a single life insurance policy and you then die, you are the owner of that policy and you own the benefit and because you own that, the proceeds basically are paid into your estate when you die. So you might be thinking that's going to go to my, my other half, you know, if you're not married, yeah, she's going to get that all well and good. Um, you know, this is particularly an issue if people are in partnerships where they're not married, because that money goes into the estate and if there's not a will in place, that money's not going to your partner, it's going to go to your next of kin, which is probably going to be a family member. And I am aware of a situation where this situation happened. There was a couple. They weren't married. They bought a house together. Mister died. His life insurance policy was paid into his estate Legally. His mum was his next of kin. His mum hated his girlfriend and she kept the money Simple as that.
Warren:So, no, that is the problem, and the solution is that if you have a single policy, it can be written into trust and you can do this with most insurers nowadays at the application stage and you basically legally gift the benefits of the policy. So, and you choose trustees and you can also nominate beneficiaries, and that's the situation that if you have a couple that are not married, you would nominate your partner as the beneficiary and also one of the trustees. There's no additional cost normally to do this through most brokers if they're reputable, and it means that if the person dies, they no longer own the benefit of that policy. The money doesn't go into their estate, it goes very quickly to their choice. It's basically paid out to the trustees and the trustees pay it to who was the intended beneficiary and they get all of the money. It's one of the issues with the money being paid into your state, as well as it not going to the right person.
Warren:The money's not released until probate is granted. Now in the uk, that averages nine months. So if you've got an urgent need for money from a single policy and it's not in trust. On average, you're going to be waiting nine months. Also, there could be legal charges on the money that goes in, because solicitors will charge 2%, 3%, 4% maybe. So you might lose 2%, 3%, 4% of the life insurance money in legal fees. And if there's an inheritance tax liability, the life insurance money will contribute to the IHT bill.
Warren:And the interesting thing is, if the money's stuck in waiting for ground to probate in the estate, you have to pay the IHT liability before the life insurance money is released. So if the money was intended to pay an IHT liability before the life insurance money is released, so if the money was intended to pay an IHT bill, you can't get at it until you pay the IHT bill, which is a big issue. So there are issues with single policies and only around about 4% of life insurance policies are actually put into trust. So about 96% last time I checked and it may be slightly high now because I think it's getting better but probably at least 9 out of 10 are not written in trust, I see, and the only time you discover an issue is when you're dead. So it's a bit late then.
Dr James:Well, this is it. It's like many years down the line, so it really helps to set these things up from the start. It's all knowledge, man. The more you know, the better right?
Warren:yeah, it is. And the thing with life insurance, the most dangerous thing about it is it looks so simple. On the surface. You sort of think I've got a life insurance policy. If I die, the money goes there, and it won't often so. And that little bit of how it looks so simple means that a lot of people think I'll just do it myself. Um, and yeah, I can understand why people would think it's sensible. Simple means that a lot of people think I'll just do it myself. Um, and yeah, I can understand why people would think it's sensible to do that. But when you consider that if you choose a broker where they've they're not getting loaded premiums, you're going to get exactly the same prices as if you do it yourself, but you get the benefit of the expertise and the advice and they sort of walk you through it and make sure everything's done correctly. So why?
Dr James:wouldn't? You Seems smart to me. Well, listen, Warren, whilst we're talking, just then we have had a question come in in the chat, so this is a direct message to myself. So we'll circle back that in two seconds. Because it's a direct message, I'll presume that the person you sent that wants to operate anonymously or wants to ask that question anonymously. Well, I don't know, but we'll proceed on that basis. But just before we do, Warren, I thought it would be really nice, just before we wrap up on this portion of the webinar, if you could give us a quick checklist of all the things quick and nasty, quick fire of all the things that we need to look out for to make sure we're getting the best deal One, two, three, four, bang, bang, bang. And then we know we've given everybody a really nice concise summary that they can use to ensure that they're getting a sweet deal whenever it comes to their life insurance.
Warren:And, as I say, we can just make sure that what we're giving them is really really, really value-packed and concise I guess the first thing is get advice, because it's easy to get it wrong, um, and if you get advice and the advisor that makes a mistake, then you can get compensated and you're covered by the financial services compensation scheme. If you do it yourself, then you're saying you're the advisor, you're the expert, and if you get it wrong there's no one to complain to. So first thing is get advice. Secondly, get advice from somebody that has access to a wide range of insurers and doesn't sort of use a load of premiums. So that way you get the method of advice without any additional cost. And often the advice can potentially reduce the cost because, you know, what seems like the best solution might not be the best solution and it might be a much more cost-effective solution. And I've come across that. I've come across people who said this is what I want to do and I've priced it up and it's £700 a month and they say, actually this is better and it's £300 a month. So they go ah, we haven't thought of that. So advice, get advice.
Warren:Get advice from somebody who's got access to a wide range with the same premiums and take it seriously, because fight your optimism bias probably is the one thing, because you know, think carefully about it, because you know illness cover is much more likely to happen. But often you can come back from illness. But you know life insurance death is the least likely. If it's a horse race, it's the odds. It's a long odds one, it's not the favourite. So illness is the odds-on favourite, death is the outsider. But the downside, with death, if it happens, there's no coming back from it.
Warren:As far as I'm aware, maybe one incident in history Depends on the belief system. But yeah, essentially, think carefully about it because you know, if you look into it there's sobering thoughts and one of the most sobering ones came to me after my youngest son when he was in primary school. My youngest son, when he was in primary school he lost. Well, in his class there were four parents that died by the time his class had gone through primary school, and that's so four parents out of 30 kids. And that made me look into it. But apparently it's roughly about one in 29 children will lose a parent by the time they leave school. So you know, this optimism bias we have is very, very powerful. So it never happens to us. That's how we think. So fight that and seriously think about it. Don't just assume it won't happen to you, because you know bad things happen to good people and you know good things happen to bad people sometimes as well.
Dr James:So, yeah, think seriously about it and don't work on the assumption that it won't happen to you it's definitely a huge subconscious bias that we have as human beings, we and we're so full of paradoxes as well, because, uh well, first of all, just to cover that subconscious bias it's like we don't think this is what you were saying earlier. The reason the lottery works is that we all think there's a chance that we're gonna win, right?
Dr James:even though there's a chance, but it's a long, long odds one yeah yeah, but then at the same time it's like we don't, we kind of massively downplay the odds of bad things happening to us. But then the reason why I said we're a paradox as human beings sometimes is that we're some, we're. Even though that is the case, we don't think bad things will happen to us and we think generally, we think it's very likely that good things, more likely than it actually is that really good things will happen to us. Here's the thing. If we want to get slightly ethereal, you know comfort zones and things like that A lot of people, a lot of people and the vast majority of people are very they love their comfort zone. Let's just say that. Do you know what I mean? And we kind of overstate the odds of stepping outside of our comfort zone, which seems a little bit of a paradox because we also downplay the odds of bad things happening. Anyway, we're going on a huge tangent. But yes, anyway, just a bit of fun. That's what was going on in my head. I found that fascinating. Okay, cool, uh, anonymous.
Dr James:Question for Warren. Question for Warren. I'm just going to read this out as it's written here. Question for Warren. My principal is always advised to take out a large life insurance policy in brackets. One million pounds when we're young is that? I don't know if that's uh representative of what's out there one, but we'll find out in a minute. You can give us your opinion. Uh, when we are young and fit this way, premiums should be lower because we are young. But also you can use it for future mortgages or even practice purchases without having to take out a new policy. Would you advise this, Warren?
Warren:It's probably a similar approach to what I did for my oldest son. So I wouldn't say it's bad advice, because you know, if you can get the cover when you're super young and you end up needing it, then that can be pretty good value. I guess the issue with a million pounds worth of cover is, if you never have a need for more than four hundred and fifty thousand pounds worth of cover, then you might end up still paying more by taking a much bigger sum that's going to cover any eventuality than just going okay, well, we'll take it out when we need it. And also, how long do you take the cover out for is one of the issues, because maybe do you take it to 70?, do you take it to 75? Do you take it to 60?
Warren:So it's quite difficult to plan. I think the the basic idea is actually pretty sound. It's not a bad thing at all. Um, whether I'd go for that size of cover, I think if it was me, with the knowledge I have now, if I was a young man, I would probably go go for a smaller sum than that and for a decent length of time and then, if I ever exceed that, maybe just take a smaller topper, so that I'm not avoid the likelihood of me just having way more insurance than I'll ever need.
Dr James:And if it's that?
Warren:big. It needs to be in trust, because if you die that money's in your estate. Then you're well over your sort of zero rate band. So you're probably going to get 40% of 600,000 or whatever.
Dr James:Do you know what? So we see that one million number right there. Maybe if you could give us a little bit of a ballpark of what we should be looking for and I get that we definitely don't want to be giving specific advice on this webinar, that's not what we're here to do but even if we just had a little bit of a how can I say liquor finger, put it in the air approximation.
Warren:I'd say look at what your plans are, you know, do you plan on having? If you plan on having a million pound mortgage at some point in the future, then take a million pounds out. So that's not a bad thing. But if you think you know my, I'd like to have a get a half a million pound mortgage at some point and I probably won't go above that. Maybe I'm going to take a few hundred thousand pounds. I'll buy into a practice at some point. Try and, rather than just go random it's a million pounds because that's a really big number Try and sort of actually get some sort of rationale behind the number maybe. And then if you need a bit extra, as long as you're not sort of 80 when you need the extra cover, it'll be pretty cheap to take a little top up If you come across a specific instance where you're just a little bit underinsured.
Dr James:Okay, food for thought. Well, listen, thank you for the cue because it stirs conversation and I'd really like to think people got value from that. So thank you to that anonymous yeah, thank you to that.
Dr James:Life insurance. Thank you to that anonymous. Yeah, thank you to that. Life insurance is a dry topic, oh no. Well, here's the thing I mean.
Dr James:I, I do know what you mean and I do know how it can come across that way, but here's the thing that really, I suppose, made it a lot more interesting, I suppose, for myself, or maybe realize the value of having these conversations, when you showed me those premiums and how they scale with time. It is actually crazy, okay, and and and that's if you get getting a better deal. You can completely avoid that because if you think about it, if you're paying a monthly premium to somebody, you're their passive income, like that's what you are right, and that businesses love sticky money, right. So we want to, we definitely want to minimize that as much as possible, minimize your outgoing, outgoing. So I think that that's that gave me a whole new perspective on having these sorts of conversations, how valuable they are.
Dr James:Okay, we've got a question from I believe that's Shabnam, right there. My life insurance only covers if any of my mortgage is left to be paid. If I, if I die, if I I know I cancel this, this policy, do I lose all the money I've paid into it?
Warren:yes, yeah, it's, it's um term assurance, life insurance, critical illness policies, even income protection. They're exactly the same as your car insurance or your buildings insurance. You know you're paying to cover the risk. If it't, if you don't need a payout, then that's a good thing, because when I arrange cover for people, I hope they never need it in reality. So it's not an investment product.
Warren:You know, if you've got, if you're paying £10 a month and a potential payout of £400,000, clearly there's a very low percentage payout. Otherwise the whole of life policy. And then if you see the premium difference between life insurance policies that are guaranteed to pay out versus ones where they don't, you know they're massively more expensive because they have to. If you've got a hundred thousand pound payout, they have to get enough in premiums that they can invest and pay out a hundred thousand pounds at the, whereas term assurance to cover your mortgages is relatively cheap because there's a good chance they won't pay out. So, yes, you won't get anything back and that's the standard with most insurances. If you don't crash your car, you get nothing out of your car insurance. So that's the way to think about it.
Dr James:Understood. Well, Warren, thank you so much for sharing your wisdom and your insight. Uh, in response, just in, just in general on this webinar tonight uh, gotta thank you for from shabnam in the chat. Thank you so much for answering, for asking that question, uh, to start a conversation this evening because others will find value in the response that Warren has just given.
Dr James:So thank you guys we like to keep these webinars to around about the 40 minute mark, and we're coming up to that just now, maybe just slightly past it, but all good, if anybody wants to reach out to Warren, how would they be best off doing that? Have you got a phone number, contact details?
Warren:yeah, um, if, if anybody wants to give me a call directly, it's. My mobile number is 07 977 09 3361, um. I'm available to talk generally between 9 am and 10 pm, so I'm happy to chat to people at practice hours. So I'm not a mad workaholic. I don't work solidly during those hours, but I'm available. So I'm not a mad workaholic. I don't work solidly during those hours, but I'm available, so I'm not some crazy work nut, um, but yeah, so a lot of the clients I speak to are dentists and doctors. They're busy during the day, so being available in the evening is is good, um, or go on the medident fs website, so medidentfscouk, um. And, if you know, it's possible to book an appointment directly into my diary um via a link on the website. So, um, you know, and it doesn't have to be somebody that's definitely interested in taking insurance. If you just got a general question um that you're curious and you want answered, feel free to get in touch.
Dr James:Um, I'm happy to offer advice, even if you're not looking to take cover out in the immediate term totally cool, awesome, and for people who are watching this and dancing with us facebook group, we're going to put a link in the description of this video, uh, for anybody who, which you can use to reach out to Warren, to connect with Warren, so feel free to do that, uh, when you see that link on the facebook group, as I was. As I was saying, okay Warren.
Dr James:Well, listen, thank you so much for your time this evening. We are really appreciative that you're able to give up some time on uh this wednesday evening, some time out of your evening.
Dr James:So I think we all clap up for Warren for everybody who's on this, as always, everybody who's on this webinar and everybody who will be watching as time goes on, because we will be sharing this on the Dentists Who invest website as well, which is cool, all right, well, listen, we're going to go ahead and wrap up around about there, guys. Thank you so much for coming along tonight. We run these webinars every two weeks. There'll be another webinar in a few weeks on the subject of finance for dentists looking forward to an announcement on that very soon. In the meantime, hope everybody has an absolutely smashing week and we'll see each other soon.
