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Dr James:
Hey everyone, what is up? I hope you’re having a flippant incredible day, wherever you are in the world. Welcome back to my good friend, tony Hammond. We are here today to talk anything and everything life insurance off the back of our previous two podcasts which went down extremely well. How are you, tony?
Tony:
Hey, james, I’m doing brilliantly, thank you. Thank you for asking me back. I’m loving this and really looking forward to talking about life insurance today.
Dr James:
Yeah, Dude, my pleasure. And you know what. You know the the Bidalat Mortgages podcast that we did last time. I had like two, three people who reached out to me on Facebook DMs and they were like whoa, that guy’s passion for mortgages is flipping awesome, and so it should be, because they’re very important things. And, yeah, that’s what I’ve love. That’s what I love about our last two episodes and I’m sure it’s going to be more of the same today. We’re going to make life insurance something passionate and exciting to talk about. I know we’re going to do it. We’ll find a way. So, first of all, life insurance Tony, if we were just to break it down and make it really simple let’s say that someone has never heard of it before. I know that it’s maybe something that people talk about commonly. You know it is something that we have a vague awareness of what it is If we were just to break it down so that we could have a really simple understanding of life insurance and how it works and then build on that as the podcast progresses.
Tony:
Sure, yeah, happy to do that. I had the conversation a lot with clients where they think, oh, you know, I really should get about doing that and getting life insurance. But where I come from is about making your shoulds a must, and to me this is an absolute must. This is a no brainer. What we do in Ham and Financial again, keep it simple. We provide a financial safety net and this is exactly what it is. This is a financial safety net. If the worst thing happens, you’re not around anymore, what’s going to happen to your loved ones, your family, your children, your spouse, your partner? What happens if you’re not there? None of us want to think it’s ever going to happen to us, but unfortunately, no, it does. It doesn’t have to be disease, it could be an accident, something like that, but it can be catastrophic for the families that are left affected by it. So not only have they got to deal with the loss of the loved one, it’s the financial catastrophe where they just fall off a cliff. They’ve got to deal with the grief, but some people can lose their home because you haven’t put your ducks in a row and done the basic stuff first. So I do lots of different products, but this is about getting your basics in, and so this is an absolute must. So, to answer your question, life insurance pretty much does what it says on the tin. It’s an insurance that pays out, typically a lump sum, if you die or if you’re diagnosed with a terminal illness. By terminal illness it’s where a UK consultant says you’ve got 12 months or less to live. So quite often stage four cancers and things like that. So it can pay out even though you’re alive. But you’ll know that you haven’t got that long left. So some people want to do something with it while they’re still alive Mason holiday or something like that, or not A question I would accept. A lot of people have heard about life insurance. A lot of people listening will think, yeah, I’ve got that sorted out. You need to review it on a regular basis because our lives change, partners change, mortgages change, businesses grow, whatever it may be. But one thing that really saddens me when I speak to a client because I ask to have a look at their existing policies just to see if they’re still relevant and I provide the service for free Is your policy and trust. Now you think, well, what difference does that make? Well, let’s just say a dentist has life insurance for £500,000 and they die, you may or may not know that their estate isn’t released. It has to go through something called probate where, in essence, that HMRC makes sure they get their money first before anybody else gets anything. And I won’t go into the dynamics of exactly how much that is, but once you get over your threshold, the government takes 40% before anybody gets anything. Else, which I personally believe is I can’t stand it because you’ve already paid tax once, why pay tax again? So it’s about getting your ducks in a row. If your policy isn’t in trust, it goes into your estate and is taxable. So if you go over your inheritance tax threshold let’s say it’s a single person and with their property, their threshold is £500,000. The life insurance that they’ve got in place with all best wills it’s going to take their policy to, say, 800, I’m just making the figures up, it doesn’t really matter. They would then be taxed on 40% of that 300,000 over and above their threshold, which is criminal. By putting a policy into trust, it takes the life insurance out of their estate. So first of all, there isn’t any inheritance tax due on it. Also, then doesn’t have to go through to probate because of the trust it gets paid to their trustees typically their partner, the friends, the family and they’ll get that money within days and weeks of them dying, when they really need it. So life insurance does what it says on the tin if someone dies or the diagnosed with terminal illness, but it’s really, really, really important to make sure it’s put into trust, because I see so many policies out there that hasn’t done the job and so it’s really not doing what you wanted it to do in the first place, and painful.
Dr James:
You know what that’s interesting, and we’re going to get more into how things can be structured in just a minute. Is there ever a disadvantage to putting it into trust, or should this be the thing that we do every single?
Tony:
time. Every life policy that I do I put into trust every time. I can’t think of a circumstances when you wouldn’t. Because it’s taken out of your estate. It gets the right money to the right people in the right time is what it does. It doesn’t cost you a penny. I do that as a service for all my clients because it’s the right thing to do. Some brokers may not want to do it because it’s a bit of a pain, it’s extra work, things like that, but that’s probably old school, the new school that the providers. They make it really easy. It’s online most of it. If not, it’s a one page form. It’s really straightforward and I talk to clients about who they want to be a trustee or phone the trustees up to explain what it means to do it. But life insurance gets paid to the trustee, so let’s just say it’s your partner and it’s your brother. For argument’s sake, it could be anybody you need to trust because the money gets paid to them. They then do with it what you’ve told them. So you typically have something like a letter of wishes where it say okay, I want this to pay off my mortgage or to pay for my children until they’re 18 or 25 or whatever you want to do. So the trustees know what to do with the money and they get it quickly, and so they then can do what you wanted to do with it. So, rather than sit it 40% going to the government and you have to wait nine months to a year for Pro-Bake to finish before you can get it anyway, just for the sake of one form. It’s criminal in my view, not literally, obviously, but it’s really bad advice if you’ve got a life insurance policy and it’s not put into trust. If you’ve got one a life policy and it’s not put into trust, give me a shout, I’ll do it for you.
Dr James:
Interesting stuff. Well, it seems like a no brainer really when you put it like that, Absolutely. And actually the things that you were saying on trust just a second ago and how you should, how you’re able, how one is able to efficiently structure their life insurance policy, actually leads very nicely into what I wanted to ask next, which is let’s compare dentists who are sole traders versus dentists who are limited companies. How can we structure our investment in life insurance policy to make that as efficient as possible?
Tony:
Okay, that’s a really good question. The sole traders and a lot of the dentists may already have a life insurance policy in place. It’ll be in their personal name because a sole trader is as far as HMRC are concerned, they just look straight through the structure to the person. So it’s not an entity like a limited company. Even though you’re trading as a company it’s a sole trader. Hmrc just seed the person that they would see James Martin. So you’d have a life insurance policy in your personal name which you paid out after you’ve already paid tax on the money. So it’s paid out of your income, so you’ve already paid tax on that money. A limited company director. So there’s plenty of dentists out there that have a limited company so they’re the sole director, or maybe one or two directors. They can do it where the business pays for the life insurance and it is very tax efficient. It’s one of the best products out there to be tax efficient. So policy very similar. Still, life insurance and the premiums aren’t that different if you take tax out of the equation. But let’s say we’ve got a sole director, limited company dentists, so they’re working for their own limited company. The limited company pays the premiums. They can then offset that premium against tax. It doesn’t count as a as a benefit in kind. So on the P11D. So there’s no. So the putting life insurance on expenses why wouldn’t you do that? And then when the money’s paid out to their beneficiaries, their loved ones, it’s tax free, lump. So it’s tax free going in. It’s tax free coming out Every time. If you’re a higher rate taxpayer, it’s 49% cheaper than up in real terms, taking tax into consideration. It’s 49% cheaper as a higher rate taxpayer than it would be buying it in your personal name. If you’re a basic rate taxpayer, it’s 40% cheaper. So there’s massive savings. So if I’m a dentist one, first of all, life insurance is cheap Because the risk of it happening to you there’s lots of it’s about, but let’s say it’s, for argument’s sake, around about 10% chance within the within your, your working life, that that’s going to happen to you. But it’s still a really important one to get covered. So because it insurance is based on risk, it’s relatively low compared to the income protection which which, as you remember, is if you signed off work for any reason, it will pay out. There’s a much higher percentage chance of that happening than life insurance. So because there’s a less chance of it. It’s much cheaper. It’s a real no brainer. Everybody listening should have a life insurance policy to protect their loved ones. If you’ve got the limited company put it through the business every time, it’s at least 40% cheaper than it would be doing in your personal name. Why wouldn’t you do it? I’m shutting myself up because I got on a rant, don’t I? But I wanted to make sure I answered your question.
Dr James:
No, listen. As you can see, I’m just really passionate.
Tony:
Everybody should do it.
Dr James:
It’s awesome and this is exactly what people were raving about from the last few podcasts, and it was the energy that you bring to these topics, which is flipping wonderful. So if you put it through your, if you put it through you know, if you’re a sole trader, right, your panel life insurance policy is not tax deductible. I understood that, but you bought your paid tax on it because you take it out of your income.
Tony:
Oh yeah, yeah, yeah, so you’ve already paid your tax. Yes, so tax has been paid on the premium. Yeah, so where? If you put it through your business, the product name that some people may have heard of is called relevant life. I really try hard not to use the jargon that the industry use. What does relevant life mean? You wouldn’t even know. It’s a life insurance policy, would you necessarily? But that’s the name that the industry put on it. It’s debt and service. That’s what if you put it through the business, it’s setting up. You told me, to keep it simple, it’s setting up your own debt and service. If you do it through the business, you can do it for yourself personally. But if you, if you then have a, rather if you’ve got your staff, so your practice manager, your practice nurse, the reception, things like that we all know how difficult it is to keep hold of the right staff. Very cheaply, you can set up a life policy, a death in service policy. People understand what that is. That’s what it says on a tin for your staff, where the business pays the premiums and the beneficiaries to the staff. If they were to die, get it tax free. So that’s again a very tax efficient way of doing it. But you know well, savvy ones I think. Well, I want to keep my really good staff, but I also want to attract the right staff. Why would they want to come to my dental practice? It’s because we look after our staff and if you feel valued, you want to stay become. I think it helps part of the team essence and things like that as well, and the culture and the ethics of the business. So that’s something to think about.
Dr James:
So sorry, james, you were going to say no, no, all I was going to say was so in essence, in essence, put us through the business where possible. That’s how it should be structured.
Tony:
Absolutely no brainer.
Dr James:
So let’s let’s develop the taxation concept that we were talking about. Let’s develop life insurance with relevance to taxation. Is it any other tax considerations that we need to know about, any other ways that we can be efficient?
Tony:
Yeah Well, putting it through the business, so you have to have an employee employer relationship. So by that I mean it doesn’t work for a sole trader. We said that. So you long as it’s not that it could be for any staff member, and I think I mentioned before so that wouldn’t go down on as a benefit in kind, so there’s no P11D for it, unlike if you have your private medical or your car through the business, that goes down as a benefit in kind. You have to pay for that. I think people are familiar with that. Where life insurance through the business, there isn’t any benefit in kind and also it doesn’t count towards your lifetime allowance. So for your pensions and things like that I’m not going to touch on that today, but it doesn’t count towards that. It was all part of the legislation going back somewhere. Life insurance is often linked to your pension but for so long as you qualify ie that employee employer relationship it doesn’t count to your lifetime allowance either. But as far as tax benefits are concerned, as I said, just to reiterate, if you’re a basic rate taxpayer it’s 40% cheaper to do it through the business. If you’re a higher rate taxpayer it’s 49% cheaper. But if you’re a sole trader. You don’t have any choice. You’ve got to do it in your personal way.
Dr James:
Awesome. Thank you for that. That’s literally top to bottom tax efficiency for life insurance policies, which is really flipping cool. Let’s talk about the people who actually benefit from these policies. Is this just our immediate family? Can we mix and match policies on that front? Can there be more or less people? How does that look?
Tony:
It could be whoever you want it to be. It could be the local cat side. That’s what you’re passionate about.
Dr James:
The local cat sanctuary. The local cat sanctuary.
Tony:
Yeah, it could be any charity. So it could be a charity. It could be your loved ones, it could be your best friend, your partner, whoever you want it to be. So you set that, as I say, with all my policies. I put them in trust For me. A lot of the time, with the dentists that I work with, a lot of them are married. They would so excuse me, I’m just taking that as an example so a married dentist, they would have their partner, their spouse, as a trustee and somebody else as well. So the best friend, a sibling, something like that. It’s best not to have your parents, because typically they’re not going to be around as long as you. So it’s going to have. So something that you trust that the money goes through. So that’s typically how I would set it up every single time. So put it in trust. It makes it easy and it makes the money go to the right people. So you can choose whoever you want to do it.
Dr James:
Cool. Any ins and outs that we should know about, in addition to that, anything that we haven’t covered so far? I’ve got a few more questions. I just want to go really broad, in case there’s anything that we can do.
Tony:
So let’s keep it broad. There’s different types of life policy. There’s one that’s cool Again, I don’t want to get too technical about it level term. So if I’ve got a life insurance of 500,000 pounds, typically often it’s for people to cover their mortgage. So if they died, their partner can have the house rather than the debt. Keeping it on a level policy means that they have 500,000 pounds across the length of the policy. The most common way that a lot of brokers do it is they have what’s called a decreasing term. So as their mortgage goes down over 25, 30 years, whatever it may be, and their balance goes down, the life insurance goes down to match it. So it could be that in 20 years time your life insurance is not really worth that much, but you haven’t got much mortgage to pay off. Where I look at it, often for the price of a cup of coffee. The difference between the decreasing term and the level term, that’s it. So why not go for the level term? Because you can justify it. Also, a lot of people again, in my view, old fashioned advice they would go for a decreasing term policy. If they’re married, they’ll have it on a joint policy. So it’s joint policy, first death. So Mr and Mrs, one of them dies, the life insurance pays out. A surviving member doesn’t have any life insurance and 20 years down the line the life insurance is a lot more expensive. Where? Again? Because life insurance is cheap. I’m very I can’t think. The last time I did a joint policy because I would set it up as two single policies. So you’ve got Mr and Mrs have their own life insurance policy. If either of them die, it pays them mortgage off, but the other person still has life insurance around and God forbid. It’s a nasty, depressing scenario. They’re both dying of car crash. Their beneficiaries have twice the amount of insurance for the cost of a cup of coffee a month. That’s typically the only difference between the two. There we are. There’s those sorts of things to take into consideration, of course.
Dr James:
Thank you for sharing. Will you finish this then?
Tony:
sorry, yeah, well, I’m just going to go on to another area, so I’ve talked about it, if you’re happy with me to do so.
Dr James:
Of course, yeah, absolutely.
Tony:
We talked about putting it through your business. So the relevant life product is really good for small to medium enterprises, typically with up to three members doing it, so you could have yourself as a sole dentist, your practice manager and the dental nurse, just as an illustration. If you’ve got a bigger practice when there’s lots that I talk to have the corporates nowadays they’ve got lots then I would then put it through a group life policy. And this is what’s really sexy about it, in my view. A group life policy is really for three or more members of the company and you have set amount, typically two or four times salary. But the way that it works is that there isn’t, unlike normal life insurance, whether it’s in your personal name or through the business, the group policy there isn’t any underwriting involved. So for some people that would struggle to get life insurance if it’s on a group policy up to certain levels and it’s quite high levels they don’t have any medical underwriting either. So I’ve got clients where they would struggle to get it. They’ve had I’m thinking of one just down the road actually that had skin cancer and survived, and wonderful that a lot of cancers are now survivable where they weren’t 20 years ago. So the insurance policy paid out, but they can’t get any more life insurance. But it’s through group policy and it’s only a small business and they’ve got five members. There’s no medical underwriting to do. If you’ve got three or more staff that you’re paying it for, it’s cheaper to put it in a group policy as well. So that’s something else to think about. We talked about beneficiaries. I just wanted to cover that point off because I think that’s very I was going to say relevant then, but that would be a player words and I didn’t mean that. That sounds very corny. The other way to think, of which most people wouldn’t have heard of, which it’s not necessarily innovative, which I know you always like to talk about but there’s a life insurance product designed for families. It’s called family income benefit. I don’t know if you’ve heard of it at all before, but what this does, rather than pay a lump sum. So typically life insurance is people buy. When they get the house, they re-mortgage and it’s to cover the mortgage and other things. So let’s say that happens and the house is paid off, husband and wife, one of them dies, house’s mortgage is paid off, but they’ve lost the income of their partner. They still have school fees. They still have bills. We all know the cost of living’s gone up. What do they do then? Well, a family income benefit policy will pay a set amount every month, typically as a replacement for the lost income that they’ve had. So you could set it. So if a dentist is earning four or five thousand pounds a month and their family would really miss that, they can set up a monthly amount to be paid of anything. It’s 500 pounds if that’s all they need, five thousand, but you name it. But it’s because it’s a really helpful monthly policy to back up the lost income. If it’s a single parent, then it’s the money that they can pay their guardians to look after their children when they’re not around. So there’s lots of ways that you can do that. If you’re full-time carer because your partner’s had a stroke or something, this will pay you your monthly income, so you’re able to do that. There’s lots of ways of doing it. So it’s a life policy that’s paid monthly for various different reasons. A lot of the time you’d have your lump. Someone that we’ve already discussed pays off your mortgage. You’d also have a family income benefit policy alongside it as well the more astute ones to pay for the living expenses as well, because it’s not just the mortgage. We all know there’s loads of other bills that you’ve got to do as well. So I would encourage anybody with a family, whether that’s just their partner or with children. Family income benefits are really important insurance to have. It’s relatively very cheap and I just think it’s another way of looking at it that a lot of brokers you may not have heard about it. Go figure, you know. So I’ve sort of rattled through, but there’s the four main areas of life insurance that I cover Life insurance and your personal name. Sorry, do you want to stop?
Dr James:
me. No, no, no, no, no, sorry, I was just, I was. Yeah, I was interested to hear. There’s the four types, life insurance and your personal name.
Tony:
That one through the business called relevant life, that that’s good for two to three employees. You then got the group life, which is anything for three above you name it, there’s no limit. And then you’ve got the really important one is not to forget, which is the family income benefit, which talk about that financial safety net, don’t I? So if you’re not around and you want to look after your loved one, your family, your partner, your children, you pay the mortgage off with the lump sum and then you give them a monthly amount of whatever amount that you want it to be to cover the cost of living and the bills that go through. So financially, they’re not going to be devastated as they are to lose their loved one as well. So you’re really looking after them. That financial safety net is put in place. So we all think this isn’t going to happen to me, but we know it does. We’ll all know people that have been affected by cancer and things like that and lost people way too early. This is making sure that if it happens to you that you’ve looked after your loved ones, you have to ensure you’ve heard me talk about it before you have to ensure your house. If you have a mortgage. You have to ensure your car. You probably insured your phone, your pet. This is ensuring you and it’s ensuring that your family are looked after financially in the event that you’re not around. And that’s all of these different ones do.
Dr James:
So sorry. All I was going to say was thank you for sharing that. I thought you were finished this and was there a little more.
Tony:
No, I was just. I think it’s really important as a broker because there’s good dentist, there’s bad dentist, there’s good brokers, there’s bad brokers I think it’s really important to understand the whole backstory of the client and their circumstances to make sure you’re doing the right advice. It’s about doing a proper job and not just doing the quick okay, I’ll give you a joint life on a decreasing term blah, blah, blah, because that’s what I always do. It’s about going above and beyond and getting the right things in and at least making people make a decision based on knowledge. That’s what’s so important, that the overriding bit with all of this they’re not the overriding bit, but a really important point which I haven’t mentioned yet is, if you’re happy with me, just to carry on.
Dr James:
Yeah, of course.
Tony:
Not all life policies, but a lot of the life policy providers will give you a lot of added value services. So I’ve asked the question many, many times that if I told you that you could access a British GP on the phone or on the video 24 seven from anywhere in the world, how much would you pay for that option? And often the figure that people say 20, 25 pound. They’d pay that just because we know how difficult it is getting to a GP nowadays. Or if you could phone up a GP at three o’clock in the morning or on a Sunday or when you’re in Holiday in Spain, you can’t get to your GP. If you can speak to a British GP for free, that’s what a lot of providers do. They’ll also provide counseling for mental health issues, which is, we know, is a big area Physiotherapy, all these other things. If there’s a diagnosis, you can get a second opinion by the top consultant in the area. These are all value added services that a lot of life providers offer so you can have a really cheap life insurance policy and yet the value added you use every day If you’ve got kids, things happen. They don’t happen. You know, as we all know, if you want to see a consultant. Don’t don’t get poorly at a weekend. You know, if you want a GP, it tends to be out of hours, doesn’t it on a bank holiday, things like that. You’ve got this service. Speak to a British GP within a couple of hours. Typically they’ll write you a prescription a private prescription and the service I’ve had. They even phone up the firm, your pharmacy of choice, to make sure that they’re happy to take it. Brilliant service and that’s worth paying for the insurance alone, in my view. Many times that’s happened.
Dr James:
Thank you for sharing all of that, tony, flipping gold dust, and it always reminds me. You know these sorts of things. They always remind me of this and this is how I Articulate similar things to people whenever it comes to these decisions that we put off until one day they catch up with us. It’s fine, it’s fine, it’s fine, and then it’s not fine, just like that.
Tony:
You know yeah.
Dr James:
And the thing is the point where it’s not fine. You have no idea what that’s gonna be. Is that gonna be Tomorrow, is that gonna be next week? Is it gonna be in the next ten minutes, through the heck knows. But if you’ve got something in place, what it means is that you are prepared. Tony, we’re gonna wrap up in just a few minutes. Thank you for another insightful podcast. Let’s have a, let’s have a fun question just before you leave. If you had to pick, like, three Of the biggest no-knows that you come across, or three of the biggest errors that people make whenever it comes to life insurance Through all your conversations with dentists, what would those be? I think number one is gonna be not having one in the first place. That’s got to be the biggest ever of all.
Tony:
Yeah, yeah it is an absolute no-brainer. So, yeah, not having one, not having it in trust, that is really bad advice in my view, lazy and on that side of things, and then not thinking about the whole. So the family income benefit, as an example, is it better to put it through the business or not? You know, you’ve just got to think a little bit. And also for dentists, as I say, it’s about retention of your staff. Put it through the business, provide benefits to your staff. They’re gonna want to work for you and not go somewhere else, and it’s not expensive and it’s tax deductible. But, as I said at the beginning, it’s about making your shoulds a must Now. Don’t leave it till tomorrow. Do it now. Make it a must that you’re gonna sort this out. Commit to it because it’s a no-brainer. You’re looking after the people you love most in the world. Why make that a should? You got to make that a must. And then, really, as I say, what we do, the underpin of everything that we do at I’m in financial is that we provide that financial safety net. This is what we do. We look after you and your family and, as you can tell, I’m very passionate about what we do, for sure, 100% Tony, if anybody wants to get in touch with you.
Dr James:
How might they go about that? What’s the best way they can contact me? I happy for giving my details now.
Tony:
James, what do you want to do that on the podcast? Yeah, feel free to shout the mic. Yeah, okay, you can contact me. My telephone number is 07 857 630 570. My email is Tony at Hammond financial dot-couk and you can always look at the website Hammond financial dot-couk. Stop stuff, tony. Thank you so much for your time today.
Dr James:
Passion is ever. We’re gonna see you back soon on the dentist inverse podcast.
Tony:
Much love my friend, let’s fix in Thanks, as always Cheers, thanks, thank you.