JOHN O’CONNOR explains the benefits of income protection, in particular day one cover.
To be able to work to their full potential, dentists need to be both physically and mentally fit at all times. There are very few other professions that cannot work with a broken finger, a sprained ankle, or even a sore shoulder. Many dentists continue to work when they are ill or injured, which is often ill advised as they run the risk of exacerbating a medical condition that they may be suffering from. Locum costs are expensive, and if dentists do not have the financial safety net of an income protection policy in place to pay them while they are unable to work, an illness can cause financial pressure, as well as the stress caused by the illness itself.
Income protection provides dentists with an income when they cannot work due to an illness or an accident. The forefathers of the profession recognised the need for this protection for dentists and, as a result, DG Mutual and Dentists’ Provident (the two companies that offer dentists ‘day one’ cover) were set up in the 1920s to provide dentists with this cover. No other profession has had mutual societies like these set up to provide this benefit for their members when they are sick.
The types of cover available
The main companies providing income protection to dentists in Ireland are DG Mutual, Dentists’ Provident, Irish Life, Friends First, Aviva and New Ireland.
There are many different features of income protection policies, so it is vital that you choose the product that offers the features that best suit your particular needs. You can choose a policy that covers you to the age of 55, 60 or 65, and you can cover up to 75% of your income depending on the company you choose.
A really important feature of this product for dentists is the deferred period. This is the period of time that a person has to be off sick before the insurance company will pay the income protection benefit to you. The only two companies that provide dentists with day one cover are Dentists’ Provident and DG Mutual. Day one cover means that there is no waiting period – the claim starts from the onset of your illness or accident. All of the others have minimum deferred periods ranging from four to 13 weeks. See Table 1 for the minimum deferred period before claims will commence payment in each of the insurers operating in the Irish market.
The deferred period is viewed by insurance companies as being the ‘excess’ on the policy, i.e., the portion of the claim that insured people have to bear themselves. With that in mind, you would expect the day one cover to be considerably more expensive, with no deferred period for the insurer to fall back on. In fact, this is not the case. In most cases the four- and eight-week deferred policies are more expensive than the day one cover.
The DG Mutual day one income protection policy now qualifies for tax relief on the premiums, making it even more cost-effective than before.
Insurance companies and mutual societies
One very significant point worth noting is the difference between the ownership structures of the companies that you are insured by. Both DG Mutual and Dentists’ Provident are mutual societies that were set up for the benefit of their members. All profits and reserves that are built up are kept by the society for the benefit of members. The other companies mentioned have shareholders to whom they pay their profits as they arise.
Gender equalisation of premiums
From December 21, 2012, premiums being paid on insurance products can no longer differ due to the gender of the applicant. This means that men and women will pay the same for all of their insurances. This has had a very significant effect on premiums for females for income protection, as prior to this they were charged between 25% and 50% more in premiums than their male counterparts. This may seem unfair, but the insurance companies justified this in the past because of the higher levels of claims made by females versus males. However, this anomaly is now gone, and men and women will now pay the same for new policies. Female dentists may see a reduction in their premiums, so existing female policyholders should consider getting fresh quotes for their income protection insurance. However, they should not go blindly cancelling an old policy, as if they have suffered from any illnesses since taking out the previous plan, they may well be excluded cover for this condition on a new policy. This would potentially negate the benefit of the premium saving on the policy.
Both Dentists’ Provident and DG Mutual carry out very comprehensive underwriting on new applicants. They typically look for either a GP’s report or a copy of your GP’s files before making a decision on acceptance terms. In some cases they will also ask a new applicant to undergo a medical examination; this is requested automatically if the cover is over €1,000 per week but it can also be requested by the insurer if they would like clarification on something that has arisen from the medical notes.
A very common irritation expressed by people going through the underwriting process is in relation to pre-existing conditions. Many of us will pick up health issues along the way, some of which are quite minor, although some obviously are more serious. Either way, at the time of application the underwriter may exclude any pre-existing conditions that the applicant has. If the insurer chooses to exclude cover for certain illnesses, this will arise at this point and the exclusions will have to be accepted by the applicant before cover is put in place.
However, there is a real benefit in this rigorous approach being taken by these insurers at the commencement of the policy. By underwriting new members in this comprehensive manner, both companies can keep their unpaid claims to a minimum, thereby giving greater comfort that all claims will be paid quickly and without issue when the policyholder needs it: when they are sick.
At the end of the day …
For dentists today, income protection is a necessary requirement. It is every bit as important (or even more so?) than your car insurance, buildings insurance, etc. You can replace a car, but if you get sick, can you replace your income? Also, most policies now have revenue approval, making the premiums tax deductible. Unexpected events such as an illness or accident do unfortunately happen to us all. If this happens, it is important that you can concentrate on getting better and back to work without the stress of worrying about the loss of your income.