Dentists Who Invest

Podcast Episode

Full Transcript

Dr James: 0:47

Hey, what is up everybody? I hope you’re having a smashing day wherever in the world you are. This is another episode of the Dentists Who Invest podcast, and I am joined by my good friend, tony Hammond today to discuss all things income protection and, first of all, what the heck is it because we don’t seem to know too much about it as dentists. Tony, how are you, my friend?

Tony: 1:05

I’m really good, james, thank you. Thanks for asking me on today. It’s great to talk to you.

Dr James: 1:09

My pleasure. Whereabouts in the world are you based, Tony? I’m.

Tony: 1:12

East Yorkshire, so near Beverly in East Yorkshire.

Dr James: 1:17

Oh, not too far. So I’m not too far.

Tony: 1:19

Sorry. No, you know, we’ve got the lovely world’s way just around the corner from us. So yeah, it’s lovely around here, Lovely stuff.

Dr James: 1:27

Not too far from where I used to reside then, which was, of course, leeds in the West Yorkshire, but now I’m based in London.

Tony: 1:35

Yeah, no problem at all. Yeah, it’s about yeah, less than an hour. Gotcha, gotcha, gotcha, gotcha.

Dr James: 1:41

Cool, no problem. So for those who have yet to meet you, tony, it might be nice to do a little bit of an intro who you are, what you do, what we’re going to talk about today.

Tony: 1:49

Sure, yeah. Hi everybody. My name’s Tony Hammond. I’m a qualified financial advisor, but I specialize in what I call business protection. So it’s providing a financial safety net for your business, for your family, for yourselves and also do mortgages as well on that side of things. But the main essence of what I do is providing a financial safety net for you and for your business.

Dr James: 2:14

Lovely stuff, it’s a very quick overview and that’s short and sweet. That’s exactly what we need and within that, of course, part of what you do is income protection and it might be nice to have a little bit of a high level overview of income protection and what it is, how it works, and really, really, done this. Done if you can, tony, I know you’re going to do that anyway. Really, really, have you ever heard the acronym what? How does that work? What does the acronym go? E-l-i-5?. No I don’t think I know that one. I’m looking forward to this Explain like I’m five, Okay. So sometimes on internet forums people will post a question and they’ll say E-L-I-5 at the start, which is their pre-frame, I suppose, for the explanations that they want in return. So I’m doing exactly that today E-L-I-5 income protection.

Tony: 3:04

Yeah, and in order for me to be able to understand what I do, I to keep it sort of the basic side of things as well. So, no problem, I try not to hit you with any jargon, but the way I look at it is that from a business perspective, first of all, there’s sort of four main areas that we cover, Just as a very quick high level. So you’ve got the debt. So if they’ve got business loans and things like that, you’ve got to be able to protect your profit. What happens if someone’s not around Ownership? So what happens if you’ve got the value in your business, how you pass that onto your beneficiary. And then the area that I’m talking to you today is really around the family. It’s about what happens if you can’t work. What happens if your income dries up? What can you do to put that financial safety net in place? And out of all the things that we can provide, statistically the one that is most important, ie the one that’s most likely to be claimed for, is something called income protection. But in my mind I look at that as really like an accident and sickness insurance. So back in the COVID days, which aren’t too far away, most people will be able to remember about that. You could have an insurance put in place where the government pays it for you. So you have your own furlough scheme in effect. So if you can’t work, what happens? Well, this is doing exactly that. But rather than relying on the government, you’re creating that financial safety net yourself where you’re putting your own furlough insurance in place. So if you can’t work for any reason, so you need to be signed off by the doctor for any reason at all, and that includes mental health, which I know in the dental community is a big issue as well. So it’s not just you know you have a disease such as cancer or something like that, but if you can’t work through depression, anxiety, something like that then you know that your own furlough scheme is going to pay. So for accident or sickness, that this pays out. So it’s a monthly payment paid to you, dependent on which way we go, because you can do this through your business or you can do this on in your personal name. It depends on how much that you can get, but it’s based on your taxable income. So if we take it down the business route, first of all so this would be for dentists that are limited company directors so that they own the business. It’s not for sole traders this particular one and what we do, we set up an insurance scheme in the business’s name, so that’s quite a key point. So it’s in the business’s name, not the individuals. So the business is actually own the policy itself. And then what we would do if the person that’s insured so it’s on the single life of a person, if that’s insured, if they can’t work, then the company will actually make a claim and then you get monthly benefit going through to the business and then the business pays the individual. So the benefit of doing it this way it’s like putting an income protection plan on expenses. So it’s a bit of a no brainer in my view, because you’re either going to have quite a lot of tax I’m sure a lot of your audience pay too much tax in their view so you can either pay a large tax bill or you can have or to lower the tax bill. You can then have a really market leading income protection plan that the business pays for, that you can offset against tax. So it’s really very tax efficient way of doing it. So you can benefit if you’re the business owner, have this insurance in place but the business pays for it. You offset it against tax because it’s not classed as taxable remuneration. So there isn’t a PhD 11 benefit in kind that people would be familiar with. But also the good thing about this as well is that it can cover employers pension contributions, so you can really up it a lot. It’s really based around how much you earn, so, say, taxable income. A lot of your audience may be familiar with income protection and they may even have one in place. I hope they do because, as I say, for me it’s the number one priority I would have them look at. They may have life insurance in place. They may have something called critical illness that most people are familiar with, but there’s not that many people have. The one that they’re most likely to claim is income protection. They’ll be familiar if they’ve done it in their own personal name. So they can get up to typically about 60% of their income back, so on a monthly basis. If they’re off work for any reason, you do it through a business. Not only can you offset it against tax, but you can get up to 80%, which is obviously significantly more, and on top of that you can cover employees’ pension contributions and there’s not any national insurance to pay either. So it’s a much better system to be able to do so.

Dr James: 8:04

So no, that’s fine, sorry, I thought you were finished there. Was there more to that?

Tony: 8:10

That’s the essence of it. That’s the sort of the high-level view of it. So it’s putting your own furlough scheme in place that’s going to pay you up to 80% of your taxable income every month if you can’t work for any reason, and that’s your financial safety net.

Dr James: 8:25

Awesome. So just to be totally clear, the business income protection option is only open to us when we own a limited company, when we’re the director of the limited company, not when we’re sole trader.

Tony: 8:37

Correct. Yeah, so that’s, you must have that employee-employer relationship to make this work. If you don’t have that, then you can still have the income protection, but you put it through your personal name, not through the business.

Dr James: 8:50

And at that point it’s not tax deductible.

Tony: 8:54

Correct? Yes, because you’re doing that. Basically, it’s the money that you’ve already paid tax on, so it’s your next. But you get and then you pay it out of that.

Dr James: 9:04

There you go, so yeah, I mean. So here’s the thing, so obviously. Well, this is the interesting part, because let’s say personal tax versus corporate tax and let’s say, when we’re paying things like our indemnity or GDC, right, Realistically, it makes no difference whether it comes out of a company or your personal name, because it’s tax deductible to you with me. But the key thing that we’re home and in the one right here is that this is only tax deductible when it’s run through a corporate structure, which is really cool and really interesting.

Tony: 9:33

Absolutely. And it’s a relatively new product. It’s only been out about two years. There’s only two or three providers that will do it, so that’s why the vast majority of people that are watching this today wouldn’t have heard of it. And it’s a better product, because I say you can get up to 80% of your income back, rather than the 60% that you’ve got in your personal name.

Dr James: 9:54

Is it the case that you also do personal income protection as well, or have you fully migrated to business income protection?

Tony: 10:01

No, we do. The vast majority of it is still on the personal side, because that’s the better known one and, depending on your self-employed structure, not everybody can meet the criteria for that side of it as well. So everybody out there there’s an income protection policy that they can put in place to protect themselves and the family, to make sure their income still keeps coming in. So, the way that I look at it, if you’ve got a machine at home that’s going to give you your monthly income every month, you’re certainly going to be insuring that, aren’t you? But most people don’t insure themselves. They’ll insure the car because they have to, They’ll insure the house because they have to, the pet, the phone. But this is about insuring yourself, which is obviously the most important thing, because if you can’t work for any reason, your income stops. What are the consequences of that? How’s that going to happen? How quickly is your business going to suffer and your family going to suffer? And you think, okay, which bill am I going to have to stop paying? How long is your savings going to last? And this is as I say. I’ll keep saying it again this is putting that financial safety net in place that you don’t have to worry about that and then so you’re reducing your anxiety, but you’re also reducing your tax, if you can put it through your business as well, which is key to me there enough.

Dr James: 11:14

So really, if we’re a dentist and we operate as a limited company, there’s no unless I’m mistaken, there’s no disadvantage to having business income protection versus personal income protection. In fact, if anything, there’s huge advantages, providing we have the limited company.

Tony: 11:31

Yes, there are certain other bits of criteria, that you’ve got to be in the UK for two years and be registered with a British GP, but you know those sorts of sort of fine small print, but those are the sorts of things that you put in place, so why wouldn’t you?

Dr James: 11:46

This is it, this is this one I’m getting at so unequivocally those little Ts and Cs permitting. Really, we should have this, providing we have that structure.

Tony: 11:57

Absolutely In my view. I know I would say that wouldn’t I, but if you can protect your own revenue, income, your own income, because a lot of what I do it’s talking to people about we don’t know what we don’t know. I want you to talk to businesses about certain scenarios or what happens if you can’t work, if a dentist I’ve got some dental friends and their hands are seizing up repetitive strain and things like that If they can’t work for any reason, then that puts a whole different spin on their business and their income generating ability. So it doesn’t have to be. You know, it could be anything. You’re signed off, work for any reason. But the other important point is that this is doing your job as a dentist or a dental nurse or whatever it may be. It’s if you can’t do your job. It’s not as if you can go and do something else. They will pay you if you can’t do your specific job and will continue to do so as well.

Dr James: 12:57

Amazing. Let’s zoom out a little bit specifically from the business income protection and let’s go back to personal income protection. There will be people listening who are in a few different boats or they have a few different relationships. Person A will not have any. Person B will have income protection. However, they’re probably thinking to themselves how do I get the best policy that I should I look for to ensure I’m getting a good deal? Let’s try to speak to both those people. Okay, People who are interested in having it are interested in changing. What should they look for in a good personal income protection plan?

Tony: 13:33

Well, I think it’s about understanding what you have, because with a lot of these things, it’s what you get your money, what you pay your money. You take your choice. Really, there’s better quality ones around as well. But the most important thing is, first of all, do you have an income protection policy in place or an accident sickness policy in place? Because the vast majority of people listening won’t. I think I don’t need it, but statistically I’m just trying to think I’ve got some figures around that, so I’m just going to take as an example for I just prepared this before. So let’s say, a male, 45 year old, non-smoker, everything else being equal to healthy. They have a 5.7% chance of dying. They have a 16.4% chance of suffering a serious or critical illness or death. They have a 32% chance of being unable to work for one month, which is really where we’re coming in. Or if you add all of those three together, it’s over a 40% chance that they’re going to need to make a claim in the time up to their retirement age, which is a big risk. So if you think there’s 40% chance you’re going to need to claim on this, you should have that policy in place to put that so you’re covered, and that would be the same whether you’re doing in your personal name or in the business. The main difference if you put it in your personal name is that you can only get up to 60% of your taxable income. The other thing to look at when you’ve got one in place is that when did you last review it? Because the world changes significantly in our industry and I’m very happy to provide a free review for anybody just to check what they’ve got. Point it out to them because they may not be aware that, for example, they can access a GP for 24 hours, seven days a week, as one of the added benefits with most of the policies, things like that. There’s lots of other added benefits. So anybody that’s got one, I’m very happy to provide a free review for them, no obligation at all, to make sure it’s right and fit and proper for them and they’re not overpaying, because sometimes if we’re self-employed or we have our own businesses, our income goes up and down and this is only so if the claim was made, they’re going to check what your income is. So if you’re earning 100,000 and you took the insurance out based on 100,000, but you’re now only getting 60, you’re over ensuring yourself and vice versa. It goes the other way. So you need to make sure you’ve got the right level of cover in. So there’s lots of income protection policies out there, but I believe there are some that are better than others. There’s market leading ones that have various awards, but it’s looking at the whole package and all the value-added things that you can do in that as well. I’ve mentioned one just being 24 hours, seven, access to a GP, there’s things like that. There’s one called second opinion, where if you have something diagnosed that you’re not sure about that, you can go to the best consultant that specializes in that area to have that diagnosis checked and any treatment checked as well, to make sure that’s right. And this is all part of having the package. This is what you pay for, and a lot of people don’t realize that they have this or they’ve forgotten about it. Because I would think, with all my clients, I would speak to them every year just to see what’s going on, if their circumstances changed, of what they’ve got as a sales right and fit and proper for those. But most importantly of all, to answer your question have you got one in place? First of all, that’s the most, because most people haven’t. And then, is it really? Does it still meet your requirements now, and that’s the most important thing?

Dr James: 17:20

Very nice, and does that differ for business income protection insofar as the things that we should look for which make it a good policy?

Tony: 17:30

Yeah, because it’s such a new area here and there’s really only two or three providers out there. All of the policies. If you’ve got one, they’re all really good policies. It’ll be interesting where the rest of the market go with this and if we talk, in five years time, there are probably a lot more players out there, but at the moment, because it’s quite limited, they’re all really good policies. They’ve been designed for a gap in the market. So if you’ve got an income protection policy or executive income protection that you can put through your business, then you’d have had a recent advice anyway to check on that and I’m sure that whoever did that for you would be keeping in touch with you anyway. But the vast majority because this is new most people will not have this because they haven’t heard of it. A lot of brokers, a lot of financial advisors aren’t aware of it, Hence why it was taking opportunity today. So, whether people use me or not, it’s speaking to their provider, the people that advise them to make sure that they’ve got this covered.

Dr James: 18:31

Very cool, and I know that you said that this was basically innovated very recently, two, three years ago. Is this specific to dentists or this is anybody?

Tony: 18:43

No, this is anybody out there. It’s the dental market very well, this is to any business owner out there in the UK. It doesn’t have to be dental. So the average age of a business owner in the UK is 40 now, and I think that sits up quite nicely with the dentists as well. The proportion of female owners is about 41% nationally and again from my understanding that’s fairly similar. I don’t know if that’s growing even more within the dental side of it. So as far as this is concerned, the dental industry is just another business, as long as you’ve got that business relationship. So it’s not dental specific.

Dr James: 19:24

That’s interesting, because my assumption was that this was specifically for dentists. But anyway, that’s cool.

Tony: 19:30

Let’s. I think it’s because that’s an area that I do a lot of working. I work with lots of dentists and I’m familiar with a lot of their needs and the issues that they have. We all have to specialize. I think it’s much better to specialize being sure of them than a jack of all trades. So I deal with a lot of dentists and we look at that area particularly. Hence, probably, while we’re having this conversation, james, in the first place, that’s how you’d have heard of me, because I do have a name in the industry.

Dr James: 19:58

There we are, and that actually is interesting the hierarchy, of course because somebody mentioned you on the Dentist who Invest Group and I thought let me reach out to Tony and learn all about income protection, because it is not something that we’ve ever done, we’ve ever dealt with on the Dentist who Invest podcast. Let’s make what we’re discussing even more focused on dentists. In that case, let’s take these income protection policies personal and business and let’s say what should specifically dentists be looking for? What makes a good income protection policy specifically for dentists? Are you with me? So? Will it be one that takes into account UDAs? Will it be one that takes into account the common problem that dentists have when it comes to their health injuries that they may suffer in the working environment, or is such a thing even out there?

Tony: 20:53

Yeah, not specific to dentists, but what’s pertinent to dentists is so the UDA’s side of things that just based as part of their income. Anyway, it’s the taxable income that this looks at, not the specific. So look at your tax calculation at the end of the year. As long as you pay tax on that amount, no matter whether you’ve got that through private or through NHS, that won’t matter. As long as you can demonstrate that you’ve burnt this amount of money before you can ensure the whole amount.

Dr James: 21:24

So nothing specific on that front as such that we should look for as dentists. That make a good policy.

Tony: 21:30

No, I’ve talked about some injuries. I’m just thinking of one dentist in mind now that has repetitive strain injury in the hand and because it will work less and less when it can’t work anymore, then this policy would be able to pay out for him. So if a dentist can’t use their hands, then that’s going to be very tricky. So that would cover all of that side of things. So in some industries if you’ve got a bad hand, you can’t use it. You can still do other parts of your job. But remember what I said this is specific to your occupation. So if we’re talking to dentists, if they can’t do, if they can’t be a dentist, then this would pay out. So they still may be able to work on their business, on the management side, for example, but if they can’t do the dental work and that’s the vast majority where their income comes from this would pay out.

Dr James: 22:21

Interesting. That is very interesting, in fact, because somebody says something very interesting to me the other day and I said you know, being a dentist, having the fitness and ability to be a dentist, is a bit like having the levels of fitness and ability that you need to be a premiership footballer, and what they meant by that was your body. This is true, by the way. I totally agree with this. Your body to be as dentist and perform, to work in your profession, actually has to be in peak physical condition. You know an office job. You got a sore hand, you can turn up, you can still contribute verbally and orally to meetings For dentistry. Physically you have to be in good condition insofar as no back pain, arms working, legs working everything like that right and there can’t be. All the moving parts have to be moving in harmony and it’s a job that requests a lot of your body to be in order. It requires a lot of your body to be working harmoniously, whereas lots of other jobs it doesn’t have to quite be to that level. So what I’m saying is there’s a lot more moving parts and there’s a lot more that can go wrong. There’s a lot higher a potential for you to need something with supplementary income.

Tony: 23:29

Yeah, absolutely. And the thing that I should have mentioned just come to light on what you’re saying. There they’re, in order to get the payments made, there’s what they call a deferred period of time. So if you can’t work, you’re off work for just a day or two days, then this isn’t going to pay out. But if you’re off work for a month or three months or six months, whatever it’s going to be, you decide what the deferred period is. The longer the deferred period, the cheaper the insurance. But typically that lot of dentists, I would imagine that would be able to survive without an income for three months and because they’ll have savings and things like that they could use. So if they’re off work for longer than three months, then this kicks in or they actually decide. No, for me, for my business, it would be a big impact if I couldn’t work any longer than a month, and then we’d put that in place. So each individual person would decide what that right deferred period is for them, and it may be budget as well. We can play around with that and have a look at that.

Dr James: 24:35

Something that’s just popped into my head, which is a potential pitfall that some people might have inadvertently walked into. Let’s say you have a personal income protection policy. Let’s say you’re trading as a limited company. Let’s say you’re only paying yourself 50,270 every year the basic tax rate. Then you’re only actually covered in good circumstances and in all likelihood, or in the best possible scenario, for 60% of the 50K, even though you’re earning way more than that. Yeah, exactly that. Wow, there’s going to be hundreds of people who are in that situation. You haven’t realized that.

Tony: 25:17

Yeah, yeah. And the reason why they’ve done that? They don’t want to be paying people 100%, because they want to encourage them to be able to get back to work, and a lot of them they will help. So, such as physio we talked about bad back and bending over and things like that. They’ll help them with the physio to get back to work and most of them will even provide that even if you’re not actually off sick yet, because you can access physio. I think it’s about half a dozen times a year to help you stay at work. So you don’t even have to make a claim that while having the policy in place, they want you to be at work. But hence why the industry standard is around about and it does vary from provider to provider, but it’s around about 60% on the personal side of things. So they want to encourage people to get back to work. If they paid everything 100%, then clearly people wouldn’t be any incentive for them to do that. They’ve changed on the business side of it, as I’ve already mentioned several times, up to 80%, because it’s just a different scenario. If you’re a business owner, you’re going to want to be able to do that yourself.

Dr James: 26:26

Well, that and as well as that. Let’s say their income is 100K, right? So 100K comes in every year. They’re only paying themselves 50K and let’s say they’re actually spending 50K every single year on their expenses. But they’ve got that extra 50K a year sitting in the corporate account. If they need it, Then their income is only going to be supplemented when they’re off work. There’s only going to be replaced 30K out of 50K, right? So they’re no longer going to have that additional cushion anymore and they’re going to find that they have to dip into that a little bit. So what you said is totally true. And to add on top of that, unless we thought about having business income protection. Well, business income protection would mean in that scenario that you’re getting potentially 80% of 100K rather than 30%, rather than 60% or 50K, am I right?

Tony: 27:22

Yeah, I mean it still comes through. Still comes through via POYE. So they’ll still be taxed, but they’ll get a lot more income through the business than they would do in their personal name.

Dr James: 27:32

Got you? Yeah, perfect. So yeah, that’s, and that’s actually something that I feel like a lot of people, because you’ve just said that it’s actually quite rare that people actually have business income protection. Are you with me? Yeah, so really, there’ll be a lot of people who are operating on their premise that they think that 60% of 100K is going to get paid out, should they be not well, unable to work, whereas actually, in reality, it’s going to be 60% of 50K. Are you with me?

Tony: 27:59

Yeah, the other thing to bear in mind, which is quite relevant as well, especially with the smaller limited companies, is that what they can also look at is your spouse and their salary and if they’re dividend, if they’re working in the business as well, you can put that in as well. So that tops the amount that you can claim back up as well. So let’s say you have a dentist and their spouse works in the business and they have salary and dividends. You can include that amount on top of the dentist’s income as well.

Dr James: 28:31

Right, right, right, right, right, right. Okay, very cool. So there’s some ins and outs here that aren’t always discussed.

Tony: 28:37

Yeah, probably not for today to go into all of the itty-bitty bit, because we’ll have people zoning out, but what I’d like to get across to everybody is have your own financial safety net put in place. This is just one element of it, but the most important one because you’re most likely to claim back is on income protection. We can then talk about which is the right way to go for you Is it through your business or is it in your personal name? But just make sure you have it in place, because if the business stops and you go on to statutory sick pay, that’s literally just a few pence under £100 a week, and then you’re really going to struggle on that. How quickly would you be in dire straits if that was the case? So this is about that financial safety net to make sure your income can continue if you’re unable to work. The other one to think about is on the normal income protection. I think it was with Aviva that they showed the figures that the average time for a claim on this type of insurance policy is over six years, because that’s a lot of the mental health side of things as well, and so that’s something to bear in mind. You could need this for quite a long period of time and I think I believe I’m right. I’ve seen presentations in the dental industry Mental health is a bigger issue than in a lot of other industries. I think the suicide rate is a lot higher and things like that will. Distress is that you know better than me that people are under, so this is a really important point to bear in mind. This covers mental health as well.

Dr James: 30:05

There we go, boom, we’re coming up to the 30 minute mark 20. So I like these podcasts short and sweet, powerful, punchy, all of those things. Any words that you’d like to say in conclusion, just to round things off.

Tony: 30:22

Well, so just to summarize it’s this is the insurance that you’re going to most need to claim against statistically. It’s about covering yourself and your business, and we’re happy to provide a free review for you. But if you haven’t heard of it, make where I look at this, it’s make. I’ve heard so many people say, well, I should do that, but it’s making your shoulds a must. You must do this. Put it in place for your own sanity, but for protecting yourself, your family and for your business colleagues as well. So, yeah, very happy to talk to anybody, but if you don’t want to speak to me, if you’ve got your own provider in place, have that conversation. Make it a must, not a should.

Dr James: 31:02

For me, one of the biggest takeaways is understanding the difference between personal income protection and business income protection, and you know that point that we referred to earlier, which is the fact that, in all likelihood, there’s going to be a lot of people who are operating on the fact that they’re going to get 60% of their total income revenue If they’re totally in the current replaced, whereas in reality it’ll just be 60% of whatever you draw out of your company. For me, that is highly likely to be a common thing that it applies to a lot of people that they probably haven’t realized. Yeah, but at least they’ve got something At least, and at least they’ve got something which is totally true. Yeah, 100%, 100% and exactly. Well, that’s better than nothing, of course.

Tony: 31:46

And that’s better than most. And then most won’t have anything Because I haven’t thought of this, I didn’t realize I need this, but you go to those scenarios. What would you do out there if you can’t work? How long would your income take before it stops? What are you going to do about that? You know we have disaster recovery. You know you check, done that with CQC, aren’t you? And things like that. When you have that, what happens to your business? This is all part of that. It’s part of the financial side of things. To make sure you’ve got your ducks in a row.

Dr James: 32:13

Top stuff. Tony, thank you so much for your time today. My friend, we will catch up again very, very soon. I’ll see you later. Cheers, james, thanks, ever so much, thanks everybody.