Steve Benjamin of financial advisers Brown Shipley gives his advice on what to do if you’re losing money on your income protection insurance.
It is a scenario that we hear over and over again.
You’ve recently qualified as a doctor, and you attend a mess meeting where somebody suggests to you, quite rightly, that you will only receive one or two months of full pay, followed by the same length of half pay in the event of your suffering ill health. After that, you will receive little if any income.
They then go on to suggest, again quite rightly, that the most efficient way to deal with this is to take out an income protection plan, and that the time frame over which a claim will be deferred increases over the first five years of your career.
All of this is sensible stuff and perfectly accurate. The problems occur some years later, when three completely separate things have happened.
- Firstly, you have moved around from trust to trust, area to area, fulfilling your training requirements and are probably no longer in touch with the original provider or regularly reviewing your income protection plan.
- Secondly, as soon as you move past the five-year point in your NHS career, your ill health benefits increase, potentially at a rate faster than the increase to your service.
- Finally, you become a consultant, and although your actual earnings increase by around 10-15%, your ill health pension increases by up to 40% because now all of your income is pensioned rather than just your unbanded basic pay.
It is by this point in their careers that almost every doctor who has failed to adequately review their income protection plans finds themselves over-insured. What’s more, this over-insurance is deemed to be your responsibility, which means that the provider will not pay more than the maximum allowable, regardless of how much you are paying in premiums.
In one case that I have come across, a doctor was so over-insured that they were overpaying by more than £110 a month and had been for over 12 years – some £10,000 of overpaid premiums.
So what can you do? How can you stop this from happening to you? There is only one way – and that is to review income protection plans yearly. It doesn’t necessarily need a meeting and it need only take 15 minutes, but if it isn’t done, the responsibility for any overpayment lies with the policyholder. When was yours last properly reviewed?