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Be sure to secure your future

Dr Nuala O'Farrell stresses the importance of taking out income protection and making provisions for your practice in the event of you becoming ill.

Doctors are, historically, not good at providing for either their pensions or the possibility of major illness. Isn’t it odd that we, who deal with the cataclysmic effects of major illness in our patients’ lives every day, find it hard to believe that we ourselves will ever become ill?

Women doctors, apparently, are the worst. Perhaps this is because, traditionally, women depended on their husbands for illness cover, pensions and ‘all that sort of thing’.

But increasingly, women doctors find themselves the main wage earners in their household, either because their partner loses his job, they separate or divorce, or their partner dies. (Determining which of these case scenarios is the worst is beyond the scope of this article!)

Reading the back of the first ever copy of Irish Medical Times from January 1967, I found an article on ‘Income, Illness and Insurance’. It said: “All doctors should ask themselves, ‘what will happen to myself and my family if I am taken ill or have an accident?’ Two out of every three doctors make no provision for their own illnesses.”
Well, I’m sure the situation has changed a bit. But not much! (Except that, reading on, it says: “Recommended benefits are 30 guineas a week if you are earning £3000 a year”!)

Uncomfortably exposed

Having recently overviewed my own situation in this regard, I found myself uncomfortably exposed. I am, by no means, an expert on permanent health insurance. Most, or indeed all, of this article may be, and probably is, completely wrong! Despite that disclaimer, I would like to share with you what I have gleaned in the past few hair-raising weeks.

I suspect a lot of other doctors are in a similar position to myself — i.e. they have some cover but are not sure how much, and it is probably quite inadequate to cover their actual financial needs if they were ill.

Critical illness insurance provides you with a lump sum if you get a specific illness (the policy will specify which illnesses it covers). The lump sum is tax free. The cost of the policy is based on your age and (usually) you do not need a medical to subscribe. Premia are not tax deductible.

Permanent health insurance (PHI, or income protection) will provide you with an income when you are sick (until you either die, retire or return to work), provided you pay into it, preferably from an early age. Leaving it until late in life makes the insurance premia prohibitively expensive, naturally enough.

After the age of 54, you cannot increase your PHI. Even before that, you will probably be required to have a medical. Most policies only cover you until you are aged 60 and most doctors intend to (or will have to!) retire later than the age of 60. GPs who have a GMS list will be eligible for sick leave payments, based on the size of their list, for the first six months of illness — and for half of that, for the second six months.

After that, there is nothing. Nada. No visible means of support. You are out there sick and you are on your own. (And, oddly enough, your patients are probably getting on just fine without you.) Can see why you might need PHI?

PHI will provide you with 75 per cent of your income up to €125,000 and above that, it covers 50 per cent.

The cost of the policy varies greatly, obviously according to your age, but also with the deferral period. The earliest it will begin to kick in is 13 weeks, but deferral for 26 weeks, or indeed 52 weeks, makes the cost of the policy less of a burden.

GMS payments

If your GMS payments will suffice to cover your needs and your expenses (and the expense of employing a locum) for the first six months, or if your partnership will bear the brunt of your illness for the first six months, then deferral of PHI cover for 26 weeks seems reasonable.

It is, however, much cheaper to defer PHI payments for a year. Cover to the age of 60 can be quite reasonable, but extend that cover to age 65 (I don’t think it goes to age 70!) and you will find that this particular insurance premium will gobble up quite a chunk of your present income.

If you are drawing up a partnership agreement, you need to look carefully at the wording of the provision for sick leave. You need to decide on the deferral period. Can the partnership bear the cost to the practice of the sick partner being paid their full profit share for the year (bearing in mind the GMS sick leave payments being halved for the second half of that year) or only for the first six months? When does the ill partner have to leave the partnership? You should cover the possibility of the doctor returning to work in the future, should their health situation improve.

I am told that there are a number of new insurers in the market for PHI, just very recently. They say the premia may come down with a bit of competition. So far they haven’t!

PHI premia are also tax deductible (again, so far).

Look at the policies that you have and see whether the income they would provide would be enough to cover your debts and expenses and keep you from having to worry yourself into an early grave. Bear in mind that if you are unable to work because you are sick, then you could do without major financial worries on top of that.

Posted in Guests on 11 July 2009
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