Dentists Who Invest Podcast

The Top 5 Reasons Dentists Are Overspending On Their Income Protection with Luke Hurley [CPD Available]

• Dr. James Martin • Season 4 • Episode 406

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Are you a dentist looking to grow your wealth? You can connect with Luke here: https://www.viderefinancial.com/investment-options-review

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What happens to your financial security when you can't practice dentistry? 

For most dental professionals, income protection represents the cornerstone of financial planning, yet it remains riddled with costly mistakes that could leave you vulnerable precisely when you need support most. In this eye-opening conversation with independent financial advisor Luke Hurley, we dissect the five critical errors dentists consistently make with their protection policies – and provide clear, actionable solutions to fix them.

We start by challenging the dangerous mindset that income protection can be postponed. As Luke powerfully states, "Ensuring your future self will never be cheaper than ensuring your today self." Delaying coverage not only increases premium costs but risks accumulating health-related exclusions or even becoming uninsurable. Regular reviews around career transitions prove equally essential, especially when purchasing practices, switching between NHS and private work, or establishing limited companies.

The discussion delves into the complexities of aligning protection with various dental income structures. Whether self-employed, operating through limited companies, or employed, different insurers handle income verification distinctly – potentially leaving dangerous gaps in coverage. We explore the critical importance of appropriate deferment periods, coverage definitions, premium guarantees, and inflation protection to ensure your policy delivers when needed most.

Perhaps most crucially, we examine how complete transparency during underwriting prevents future claim denials and how income protection should integrate with critical illness coverage, life insurance, and increasingly, private medical insurance to create comprehensive financial security.

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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. Investment figures quoted refer to simulated past performance and that past performance is not a reliable indicator of future results/performance.

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Dr James:

Income protection is something that a lot of dentists have, but are they getting the best out of it? Virtually none in my experience, and that's why this podcast today is co-hosted by independent financial advisor Luke Hurley. We're going to be talking about the five biggest mistakes that dentists make whenever it comes to their income protection policies, and also how to fix them. Let's go. I'm also happy to share that there is free verifiable CPD associated with this podcast episode. Whenever you finish the episode, all you have to do is click the link in the podcast description. It'll take you right through the Dentists Who Invest website. You'll be able to complete a short questionnaire and, once passed, you fill in your reflections and we'll go ahead and email over to you your verifiable CPD certificate, which is entirely free. What that means is this podcast episode will be able to contribute towards your verifiable CPD hours during this learning cycle. Do dentists pay way too much for their income protection, Luke? What are your thoughts?

Luke:

Sometimes would be my initial response. I think there's a variety of factors and mistakes that I see made, and we're going to go through five of the biggest mistakes that dentists make with their income protection. I think, before we delve into the detail, it'd be good to just make sure we have a working definition of what income protection is, because you might have some listeners that are new to this. So income protection is insurance to support you if you cannot work due to incapacity. So if you're ill or suffer ill health or hurt yourself, you've got something to fall back on for you and your dependents, if you have them. The first mistake to kick things off is, for me, getting your priorities wrong, and what I mean by that is I see a lot of people kicking the can down the road, thinking that they don't need income protection. They might not have dependents, they might be at the earlier stage of their career, but the risk you run with that approach is that premiums will get higher in time. The older you get, the more likely you might suffer some form of ill health and exclusions might be added to your policy. You might become uninsurable if you're diagnosed with a new illness or if you have an injury and, I think, on a broader level, when we talk about somebody's financial plan and we talk about income, expenditure, assets, liabilities and how they all link together to achieve financial independence. Income and having positive cash flow is the lifeblood of the financial plan, and so you expose yourself to quite a significant risk if you don't protect yourself from disasters. So my advice is lock in cover before life events can take over. Do it as soon as you have stable income. Ensuring your future self will never be cheaper than ensuring your today self. And if you want to be financially independent, then without income protection, your financial plan is really built on sand. So you need solid foundations. Yes, with insurance, we hope it's a complete waste of money. With all insurance, you ultimately hope that it's a waste of money, but disasters do happen and sadly I have seen multiple cases where people have had to claim from these policies. So my advice is don't put things off. Get the cover in place.

Luke:

That follows on nicely to the second part of this point, which is make sure you're reviewing your cover.

Luke:

As you know, life and work events change throughout the course of your career.

Luke:

So if you don't review, then you run the risk that your cover is kind of lagging behind those big events that might happen, whether it be mortgages or changes in mortgages, having some kids, lifestyle costs increasing, major events like a practice purchase or a role change or switching from NHS to private dentistry or a mix.

Luke:

You know there's lots of possible events for a dentist throughout the course of their working career and it's absolutely vital to make sure you're reviewing your income protection, because that's often where I see mistakes made is around those events and those transitions. So, lock-in reviews if you've got an advisor that works with you on this side of your financial affairs, make sure that they're looking at your cover periodically, particularly if you switch to a limited company, for example. I see that quite a lot. If there's changes in work, changes in your income levels, if you've got kids, if your lifestyle costs significantly increase, if you've changed your debt, if you've bought a practice, if you've switched between NHS and private, all of those things I think are absolutely essential to use as a trigger for having a review.

Dr James:

Or even, could I ask and I hope I'm not jumping in too early because this might be one of the subsequent points Is it even worth having a review, simply even if you've had a policy for a while, because it's quite possible that the policy has went up quite a bit in terms of the payments, in terms of what you have to pay every month, and there might be a cheaper policy that does exactly the same thing out there significantly.

Luke:

It's always worth having a review. I mean, you tend to see less of an opportunity to kind of review the cost of things as you get older, but it's not impossible, certainly worth considering. Some people have been sold policies that have reviewable premiums and it might be sensible to look at that where they've had kind of reviews in the level of their cover. So, yes, absolutely, it's not just around those life event triggers. I think it's worth just checking in every now and then and making sure you've got the best deal possible. But overall, for me, on this sort of mistake number one, it boils down to kind of treating it as optional rather than foundational. For me, income protection is the first pillar, so to speak, and then you can layer on top of that. It just gives you solid foundations on which to build.

Dr James:

Excellent, and yeah, not much to add there.

Luke:

I guess we can move on to point number two yeah, point number two is making sure you've got the right fit for your income structure, and I think this is absolutely fundamental and probably the biggest cause of most mistakes. So, as you know, dentists can be remunerated in different ways. They set themselves up with different structures to take their income, so you might have those that are self-employed, you might have those that are operating through a limited company. Some are PAYE if they've got an employed position as part of what they do. So all of that needs to be factored in in terms of the type of policy that they take out and the provider that they use, because all providers have different rules about how they require you to evidence your income, and so it's absolutely key to make sure that the policy is the right fit.

Luke:

The other issue with this is income variability. So, again, you need to know how your provider is going to treat your earnings and your income and possibly your drawings from a company, if they were to fluctuate over time, and make sure that your advisor is matching your policy to your remuneration structure. And I would say that this is probably one of the biggest reasons to get advice, because there is a substantial difference between the providers on how they'll treat things, for example. A prime example would be if you switch to using a limited company and that's often because of tax reasons, where you want to shelter some of your income from income tax then a lot of insurers will only look at your drawings from that limited company. So they'll only look at the amount that you're taking as salary and dividends. They won't look at the retained profit that's within the limited company. So again, it's a real trigger for having a review of the cover that you've got in place.

Dr James:

Seems reasonable.

Luke:

The second part sorry, James.

Luke:

The second part of that, the extension of that, actually is making sure you've got the right deferred period.

Luke:

So the deferred period is the period of time that has to pass before you can make a claim, and it's important to get the right balance on that. So you might have a policy that has a deferment period that's too long, in which case there's the potential for a cash flow gap before the policy starts paying out. But on the other extreme, you might have a policy that's quite expensive, that's kicking in from, say, day one, and you really do pay for that. So it's about finding the right balance in terms of the deferred period, aligning it with your sick pay entitlements, if you have any, if you have NHS work. Aligning it with an emergency fund, which we always recommend people have, in terms of having an easy access cash reserve to kind of self-insure for a period of time, and finding the sweet spot. And don't just assume that you know you're you're just because you're doing some nhs work that you've got substantial sick pay, because it really does just relate to your nhs earnings. So again, a good, good reason to get proper advice on this.

Dr James:

Nice.

Luke:

The final point I wrote down on the subject of income structure is around executive income protection, which is a type of income protection where the premiums are paid for by your limited company and are tax deductible. So there's the allure, there allure get the words out there of executive income protection because of the tax advantages and in truth they can be a really useful tool in the right scenarios. I wouldn't want to completely write it off. For the right fit they can be suitable, but the payout is to the company. So then you'll have to pay income tax on drawing the money out of the company and they will rely on you keeping your drawings from the company at a certain level again, so that might slight restrict your, your income and your you know your tax planning in in due course. So just just be, go into that with an element of caution and make sure that it's actually the right fit for you and your circumstances and what your longer term plans are in terms of the drawings that you're going to have from your company. Number three the third one I've got written down here, James is making the wrong cover choices. So every income protection policy there's different choices that you have to make, different features, if you like, and different variables. So the big one for me is under-insuring or over-insuring. There's a danger that you under-insure yourself. There's also a danger that you over-insure yourself.

Luke:

I said at the start that income protection like all insurance, hopefully is a complete waste of money because if it's not, then something has unfortunately happened that won't be particularly pleasant.

Luke:

So you want to get the right balance of cover, but you don't want to be paying too much in premiums.

Luke:

But if the payout doesn't meet your sort of monthly burn rate you know your lifestyle costs then there could be a shortfall. And there's also a danger, if you have too much cover based on your income, as in terms of what I just said that you wouldn't actually be able to make a full claim at the point of needing the policy. So get the right level of cover, get the right level of premium in terms of the cost for you and your family, and really put some thought into what is the right number based on the cost of your lifestyle. And everybody has a different lifestyle cost ultimately, and that doesn't stay static, it changes over the course of your life. You know, as you get older, you're typically your, your spending needs, your lifestyle costs go up, your risk goes up, and so it's important to factor that in over to wwwdennis2investcom and hit the video slash CPD tab and you can go right ahead and help yourself to as much CPD as you need.

Dr James:

You'll also find a link that takes you straight to the CPD section of the Dennis who Invests website in the podcast description.

Luke:

Building on top of that, so picking an unrealistically early kind of end age for the policies. Now, these run for a set term, so you're really insuring yourself to a point in time in the future where you think that you'll no longer need the cover. So a lot of people will tie that to a retirement age and there's a danger of you being over optimistic in terms of what that retirement age is and also being overly pessimistic. My general feeling is if a dentist still requires income protection long into their 60s, then something's gone wrong with the overall financial plan, and so just be wary of that. I do see some brokers encourage people to run income protection through to, say, state pension age. You just need to think about that. Do you realistically think that you won't be financially independent and won't have the asset base to sustain a retirement by the time you get, to, say, age 68? For me, I'd like to think that I'd have got things in order by then. So it's finding the right balance. It's having a sensible discussion over what that that age is likely to be in terms of when you'll be financially independent and you'll no longer need to insure the risk because you've got those assets and those resources to fall back on. Also, factor in particularly a dentist that's got significant NHS pension benefits, as those build up over time. There is ill health retirement benefits associated with a NHS pension and so there is also a danger and I do see this for clients that get you know advanced and reach those later years of their working life that if they were to claim an ill health retirement pension then it might actually jeopardise the amount that they can claim from their income protection policy. So, again, worth reviewing that as you get older, as to whether the policy would pay out fully, and give that review as you get older.

Luke:

Building on that, so one of the people would have instantly probably know what I mean when I say own occupation, because it was quite a big thing really when I first started that a lot of insurers didn't necessarily cover a dentist on what's called an own occupation definition. But that's, I think, changed and evolved over time and now that's pretty much the norm, it's now common. So, yes, you absolutely need to ensure that your policy is written on an own occupation definition when it comes to incapacity and that that is important. But it but it is pretty standard now for for the main insurers out there. You may want to. There are. There are some companies that now offer what's called an own job definition, which is useful if your role is more specialist, you know, if you've got more of a niche, it's. It's something you might want to consider. But own occupation just means that if you're only able to do you know, fulfill your role as a dentist and work as a dentist, then it will pay out, as opposed to something like you know work tasks or similar, which is not strong. So, yes, make sure that the definition is right. But, as I say, that is really quite standard.

Luke:

Now, so is the other point I mean for me. I always would advise somebody to take out guaranteed premiums rather than reviewable. That just means that you've got some certainty over the cost of the policy in the future and it's not tied up with the insurance provider and their fortunes. So I would default to guaranteed premiums so you know exactly what your cost is going to be over time, albeit you may link it to inflation, which you can't be certain of which I'll come on to in a moment. But yes, make sure that you've got that certainty over the lifetime cost of your policy. Indexation touched on it there, absolute must for me particularly around income protection, to make sure that your cover is going to keep pace with inflation and protect you against changes in the cost of living over time. Clearly, we know the power of inflation and the destruction of inflation. So ensure that your policy is index linked and also that it's index linked in terms of, if you were to make a claim, not just the level of cover going up before a claim, but also, once you've made a claim, making sure that that escalates as well in claim escalation. So all good points to check with your broker, with your advisor, and I would also add in a point there that how insurers increase your premium alongside the increase in cover, if you choose indexation is also important. They all do. There is some differences between insurers in terms of how they will increase the premiums alongside the indexation of the cover, and that can make a quite big impact over a long period of time. So it's always worthwhile checking what the potential cost would be on a like-for-like basis over the life of the policy and not just the initial premium. That's. You know, that's best practice, really okay.

Luke:

Point number four making mistakes when it comes to underwriting a disclosure. So this this boils down to being completely open and transparent when you're putting your application in. You can see the the statistics around. You know the claim statistics, statistics and how the insurers. You know the proportion of claims that they pay out on. Overwhelmingly a large number of claims that don't get paid out on is because there's some sort of omission during the underwriting process where things haven't been disclosed correctly. So as you go through that application process, you just need to be completely open and transparent and honest with the application, not omit anything from that, and if you do that then you shouldn't have a problem. Yes, if there's something there, the insurer might take a view on it and they might add an exclusion or they might slightly change the premium they're offering you. But it's much better to be fully transparent at the start and ensure that you're going to get a payout in the future. Otherwise the whole thing is somewhat pointless as an exercise and as a regular cost. So don't make omissions. And you see that around BMI, smoking, vaping, extreme sports all of these things need to be disclosed to an insurer as part of the application process. So make sure that you're sort of fully upfront in that to ensure that the policy will actually pay out when you need it in the future and there's no wiggle room for the insurer to kind of take a view that because you've not been fully open with them during the application process, that they're gonna. You know that it jeopardizes the claim in the end. And then the final point I wrote down was not blending it correctly with other types of cover. And yeah, I think that's that's important and I'm sure we'll do other podcasts in the future, James, on the different types of cover. That's, that's out there, but big ones for me.

Luke:

Don't assume that critical illness cover replaces income protection. It doesn't. They're very different types of insurance. Critical illness tends to pay out a lump sum based on specified conditions and you could be ill and be off work, but it won't necessarily trigger a payout on your critical illness policy. So they're very different. Treat income protection as the core, as the foundation, and critical illness is something that you might want as an optional bolt-on in the future. But for me income protection is very much the pillar of the foundation Overspending some people will overspend on critical illness when income protection already covers kind of their outgoings and I see that a lot where people load up on critical illness cover which is really quite expensive. For me, the foundation should be, as I said, income protection and life cover. Life cover paying out on death, income protection paying out on incapacity. If you do develop an unpleasant illness that would trigger a claim on a critical illness policy. Well, if it keeps you off work for an extended period of time, you'd have a valid claim on your income protection policy, and if it's really serious and ultimately is going to lead to you passing away, then your dependents will claim on your life insurance policy. So that's why I think those two are kind of the most important, and critical illness is a bolt on top of that.

Luke:

The other type of insurance I'm just going to mention here because I'm seeing a growing number of inquiries about this and conversations about this is private medical insurance.

Luke:

It's fairly well documented the wait times on the NHS for various things, the wait times on the NHS for various things and having just had a daughter that's suffering nosebleeds at the moment and has been told that she's on the priority list to see ENT paediatrics and then being told that it's a 22-month wait for her to see someone, I can well understand why people are looking at the costs of private medical insurance, and I think it's a really good kind of fit and dovetails quite nicely with income protection for dentists, so well worth considering that as well as part of your overall plan. Great, so I think, James, I've done a lot of talking there, James, but I think we've done that justice in terms of the five core areas where we see mistakes. If anybody wants to have a discussion around their current income protection, or if they don't have protection they'd like to discuss it, then feel free to reach out. You can find me on the group or pop me an email or visit our website. I'm Luke viderefinancial. com and we can have a chat.

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Dr. James Martin

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