What is income protection and why should you be considering it? In this blog, Tim Helliwell, Specialist Financial Adviser at Wesleyan Financial Services, talks through everything you need to know.
When you become an NHS doctor, you’ll be entitled to a number of benefits alongside your salary, including sick pay, a pension and more. These benefits have gained a reputation for being quite generous – and compared to other occupations, they are.
NHS sick pay
When it comes to NHS sick pay, your entitlement increases in line with your length of service.
In year one you are entitled to one month of full pay and two months of half pay. This amount will gradually increase each year until you have worked for the NHS for five years. At this point, you’ll be entitled to six months’ full pay and six months’ half pay, which is quite comforting to know.
Nobody plans to be off sick on a long-term basis, but it can happen. As a doctor, you will come across lots of people in your career whose lives have been dramatically changed due to illness or accident, so you can appreciate how fickle fate can be sometimes.
As an NHS employee with five years of service, you’ll get a level of sick pay for 12 months that will cover most illnesses and accidents. However, you will only be entitled to this sick pay while you’re working for the NHS.
For example, if in your third year you choose to leave NHS employment to work on a contract basis – as many of the doctors I’ve worked with have done – you won’t be entitled to any sick pay at all. When you’re a locum you’re usually on a higher rate of pay, but you are only paid for the hours you work. As such, holidays and sickness are not covered.
Also, if you wish to return to NHS employment after working as a locum, and there has been a gap of more than one year since you were an NHS employee, your sick pay arrangements will reset as if you are a new starter again.
In this case, you would need to work another five years to accrue your full sick pay entitlement, which is something you should take into account.
Income protection in a nutshell
It’s unlikely that you will face redundancy in your career, so being unable to work due to illness or injury is potentially one of the greatest financial risks you may face as a doctor.
Accidents and illnesses happen, and they don’t discriminate. This is why it’s worth considering your options and how you can reasonably mitigate this risk. Having income protection in place is a key part of this.
An income protection policy covers your salary in the case of long-term absence from work. It does so by providing a tax-free income if you’re unable to carry out your job as a doctor. It will continue until you’re either fit enough to return to work or you reach the age you plan to retire. It offers peace of mind that no matter what happens to your health, you’ll be able to cover your bills.
When you’re looking for an income protection policy as an NHS employee, you should factor in your sick pay as laid out in your employment contract. Income protection payments should be arranged to kick in once these benefits reduce or come to an end. This will ensure you are only paying for cover when you need it.
Reviewing cover regularly
Unlike other forms of insurance, there isn’t a specific renewal date for income protection. However, many policies will usually have an automatic inflation increase offer on them. This will vary depending on the level of inflation that year.
As the client, you can choose to accept or decline this increase. It’s also a good idea to review the level of your income protection regularly to make sure it’s keeping pace with your salary – particularly if you have a significant increase or decrease for any reason.
Getting the right advice
It’s important to get the right level of cover for your circumstances. Unlike other forms of protection, if your income protection policy is over-insuring you, you may not get a payout. Insurers typically pay around two thirds of your salary, but if you’re over-insured, you may not get that proportion.
This is why getting advice is key. For example, at Wesleyan Financial Services, an income protection policy would insure you for 60% of your gross pay. However, because this payout is tax-free, and you would normally pay tax on your salary, that would typically take you to 80-90% of your take home pay (depending on your tax rate).
As such, it’s essential to take advice to assess the level of income you can insure. If you were to take out cover off the shelf, there’s a risk you could over-insure yourself and end up paying for a benefit that you won’t be able to use.
Wesleyan Financial Services is a broker. Insurance products are provided by a number of selected insurers.
Limits, exclusions and charges do apply. Full terms and conditions of the policy and cover, including the policy benefits and exclusions, will be contained in the Policy Wording and Policy Summary. Risk must be acceptable to underwriters at normal term.