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Dentists Who Invest

Podcast Episode

Full Transcript

Dr James: 

Hey team, welcome back to the Dennis and Vest podcast In another episode of we’re Turning Face, tony Hammond. We are here today to talk all things income protection, and you can think about this as a version two of the original income protection podcast that we did way back when, where we’re gonna cover income protection again, of course, and also add some new stuff in, because over the last few months you were saying earlier, tony, that you’ve had some interest in case studies coming away. More on that later. Before we talk about that, yeah, before we talk about that, tony, how are you?

Tony: 

Yeah, fantastic, thank you. Business is going really well, really enjoying it. Looking forward to today as well.

Dr James: 

We’re cooking. Well, do you know what? Do you know what I like about our podcast, tony? You always seize the reins and you just flip and go for it and it’s like it’s like someone’s just got the horses out of its traps whenever we come to talk about income protection which is incredible, which is really really, really good. So you know what, if we had more of the same today, I think that would make for a great episode.

Tony: 

Yeah, great. Well, thank you very much and thanks, hi everybody. As I say, tony Hammond, hammond Financial those that don’t know me I’m a financial advisor and I specialize in providing a what I call a financial safety net for dentists. I have lots of conversations with dentists, particularly around income protection Again, thanks to James for the original podcast. So I just thought I’d cover off again what actually income protection is, and I try to not use jargon wherever possible. So I think income protection at its core is essentially setting up your own sick pay. You think you know, during COVID businesses that couldn’t work, they were getting furlough scheme from the government, whereas if they couldn’t work they got paid. This is setting up your own furlough scheme, your own sick pay scheme, if you like. But there are many different types and there’s a bit of confusion with some of the dentists that I’ve spoken to, so I just really want to clear that up. So, different types it’s used for different things and I think it’s important, whatever you do, whether you talk to me or somebody else, that you get good, qualified advice to do that, and so we’ve discussed some of it in the past, but I thought I’d look at it again, maybe from a slightly different perspective. So if we look at an individual dentist, it typically is working as an employee for somebody else or yourself employed, maybe as a sole trader. So if you’re employed, you’ll get your sick pay-through work for a set period of time. So, whether that be one month, three months or if it’s within the NHS, you typically get a six-month full pay, six-month half pay. Otherwise, there’s lots of other staff and other industries out there that they’ll only receive what you’ve probably heard of a statutory sick pay, which currently, I mean it’s pretty dire anyway, but it’s currently only 109.40 pence per week up to 28 weeks. So if you don’t have anything in place, how would you cope with 109.40 pence for a week, and that’s only up for 28 weeks as well? So sick pay when I’m working with clients, we’re topping that up, whether it’s through your business or not, and we can extend it by setting up your own sick pay or your income protection policy. It’s worth bearing in mind with this is that the average claim period and it does depend from provider to provider and I’ve looked at various different claim reports, but it’s averaging around five to six years is the amount of time someone is paying or is receiving income protection and a large part of that is due to for mental health and, as you’ll know, james, in the mental health industry sorry, mental health in the dental industry is a lot higher than a lot of other businesses for lots of reasons. So the big question that I would ask you is what happens when your sick pay stops, whether it’s through work or your own individual one? How do you pay your bills, how do you make sure the mortgages are paid, or your rent, or your car or school fees, whatever it may be? If your income stops, what do you do? And that’s where this comes in. So I blend in the income protection to start. When the work sick pay stops, typically, with most of them, you get up to 60% of your taxable income. I’ve gone through an exercise many times with clients. If you go through it yourself, look through your bank statements and look at what you’re actually spending and what you have to spend, so that 60% of your income covers pretty much most things for most people. So that’s what it’s designed to do. It’s not designed to pay you 100% of everything, because it wants to incentivize you to get back to work. So the industry standard is around 60% of your income If you do it through your personal name and out of the standard protection insurances that I do. That you’ve heard me talk about before on the podcast. Income protection is statistically he says, put his teeth back in is statistically one of the most likely insurances to be claimed. And yet there’s still loads of people out there that don’t have cover. The other thing that they can cope with it or they’ve got their savings that they’ll pay if they’re off work. I don’t know about you, but I don’t want to pay, use my savings for something like that. But I’ve looked at a risk calculator this morning before I came on and I sort of plucked out the figure. An average dentist, I’m saying, is 40 years old. So whether I’m right or wrong, but just bear with me 40 year old, non-smoker. Statistically they’ve got a 34% chance before their retirement age of being unable to work for one month or more. So that’s a massive risk. So a third. So when I say, statistically, this is the one of the ones that you’re going to claim the most, there’s lots of data there to back that up as well. So hence why I think it’s I’m reiterating it again it’s really important. So if you’re self-employed, in my opinion you need to have your own sick payer policy. So we’ve said what happens if you’re unable to work. Who’s going to pay for the locums? If you can’t work as a dentist, who’s going to pay for that? How will your family survive financially if your income stops? I’ve talked about savings. How long will that last? So don’t leave it to chance. Get a quote, whether it’s through me or somebody else, and it’s probably a lot cheaper than you actually realize. Also, with my conversations with dentists, I know that many dentists have their own limited company, so lots are a sole trader. So the income protection would be in the personal name. But there’s loads out there that have their own limited company and that’s whether they’re an associate working at somebody else’s practice or they’re actually run. The rank practice or practice is. The good news is that if you’ve got your own limited company, you can put your sick pay and your staff sick pay. If you want to look at that element as well, you can put that on expenses so you can offset it against tax. I’ve talked about it before in more depth, but this is the executive income protection, so the business pays for it and you can offset the business can offset the premiums against tax. It’s fairly new type of income protection two, three years old out there now. So while there may be many dentists out there have taken an income protection policy when they qualified you know you get the people coming in to the university and setting these things up very few of you will actually have an income protection policy and I think it’s only right and proper that you should review, as you’ve said to me and to James, and that’s about keeping modern, keeping up to date where you’re at, and this is making sure you’ve got the most appropriate policy for you and it’s still fit for what it’s meant to be doing. So the difference in this type is that a dentist or their staff can claim up to 80% of their taxable income, rather than the 60% of it is in your own name. So if they’re unable to work for any reason, including mental health, very importantly on this type of policy, you can also add on your national insurance contribution. So as a limited company, you still got to be paying those whether you’re in work or not. And also, very importantly for the future, it’s about paying your pension contributions, so you can include both of those to be continued to be paid if you’re off sick and the business pays the premium, and the employee then gets up to that 80% of their income and whether they go for the option of the national insurance or the pension contributions, they get that through their PAYE. As usual, and, having compared many, many policies for clients over the years whether you take it in your own name or the business every single time so far it’s always been better value for the client if they’re able to put it through the business to do so, for the reasons that I’ve mentioned, and I think this time of year is the right time to look at it. And, if you’re anything like me, it’s about making we were talking about this before, about making your shoulds a must. This is the time of year where I think you should be planning for your future, making sure you’ve got everything right and setting up to get these things in place, so now’s a brilliant time to do that. So whichever route is right for the client circumstances whether they’re employed, self-employed but they have the choice of using what the right deferred period is for them. So how long do they have to be off sick before they can claim? So that will depend whether you’re being paid by the business or not on your savings. So typically you can get one month before you start to get before you can claim three months. I do a lot of three months, six months or 12 months and if you’re working with the NHS, quite often you get six months full pay, six months off pay, as I said, and then this can kick in after that, and the longer the deferred period, the cheaper it is. Also, it’s on how. So if you’re off sick, how long is it gonna pay you for? So I said earlier on that the average claim is around five to six years, but there is a budget option that will pay out for one or two years. The difference between the two is not that much in it. So I very rarely, if ever, do a one year. So it’s either a two year or up until your retirement age or when you can return to work. So those are the options you have. So everybody is gonna be different individuals so we can set up the right policy for them, dependent on their circumstances. And the longer the deferred period, as you would imagine, and the shorter the claim period, the cheaper the premium. So this way we’ve got plenty of flexibility for everybody to have the right policy for their circumstances and budget, and as long as they’re an employee of the business and they’ve had a GP for two years that’s some of the main criteria then we’re good to go. One of the other things that I’ve talked about in the past is about there are several brilliant value-added services with most policies so, such as access to a British GP 24-7. I don’t know if you’ve got children, but if you’re like me, children tend to be sick and poorly either in the very early hours of the day or at the weekend, when you can’t access a GP so-and-so or whatever you call it where this way you can just speak. I’ve done it once myself and within 10 minutes I was speaking to a GP, but sometimes it can be up to a couple of hours. But anyway, it’s a brilliant service, one that’s also another one that’s really, really important and use that myself or with my family is a second opinion service. So it doesn’t have to be cancer, but let’s just say it’s cancer. For example, what peace of mind would it give you if you can go to the top consultant in that particular area, the oncologist in that area worldwide, and get the diagnosis first of all clarified and make sure that they agree with that, but also the treatment, and there’s many, many circumstances where the second opinion have actually changed the diagnosis but also changed the treatment as well. So I think these things are available A lot of. I’ve talked to so many people, james, where they have a policy but they don’t know if they have any of this available to them. So, by providing a review with me whether you’ve got this insurance already, happy to see what you’ve got and let you know if there’s what you have available to you, but if there’s anything that you want to get improved as well. Also, we touched on some of the confusion at the beginning and, with conversations with some of the dentists since my last podcast, james, there’s been some confusion around something called key person income protection, which we have talked about briefly but essentially the difference between the key person income protection and the normal income protection that we talked about, whether that’s done in an individual name or through the executive income protection. Through the business, the income protection they’re aimed at providing a sick policy directly to the client, the individual, where the key person income protection is very different. It’s designed to pay the business, so the main reasons for a claim would be, for example, for the business, against the financial impact of that employee becoming ill or injured. They could use that to hire a temporary replacement. It could be to protect their proportion of the profits if they’re off work for a while or to help if they’ve got loan repayments that they’re responsible for. It will pay for that as well. So just to clarify, it’s the business that takes the insurance out and the business that has paid the money, not the individual for those things. The premiums are very similar because you’re still ensuring that individual for their circumstances. But it’s really getting an understanding of what you need. Is it to have an income or is it to make sure that the business can continue and pay for things if you’re not around? And sometimes it could be right to have both, depending on the size of the business and things like that. But hopefully that will clarify the confusion for some. So business key person income protection it’s ensuring that business they get paid, not the individual. The other ones it’s about setting up their own sick pay. So even though they have a similar name, they do very different things. So I just thought that was important, that we sort that out and, as I say with my clients, it’s understanding their priorities and what’s right, so sort of to summarize where we’ve been at with it so far. So income protection can help individuals, whether that be sole traders or employees of a limited company in the business itself. As I say, if you already have an income protection policy, I’m very happy to review it for you for free of charge and I can make sure it’s still relevant to you and for your circumstances. As you’ve heard me say before, I can help businesses provide a sick pay, as we just discussed today, also a death in service and private medical you’ve heard me talking about before. So I can help you set up those benefits packages via self and via staff, first two of which you’re able to put on expenses, as I mentioned before. So that can have, if you’ve got that benefits package available to yourself and your staff, that can have a massive impact on helping attract and retain the right staff and especially in dentistry know how difficult that can be. There can be some black holes in areas of the country where dentists may not necessarily want to go. This can help that, help improve the culture, all of which can help a practice owner meet the CQC’s well-led key line of inquiry, or the domains, as it’s going to be called coming next year. So it’s meeting. All of those sorts of things that you need to be looking at as well. So, look after yourself, look after your staff and provide a financial safety net for you and your staff is, in essence, is what I want to say today. How’s that?

Dr James: 

Cool, that is top stuff. And you know what, tony? It was interesting because I know we were talking off camera and I alluded to this at the very start of the podcast. But you said that there was a few interesting situations. I suppose that you came across. Maybe you covered these a little bit already. I know you covered one there. From what I heard, was there more as well?

Tony: 

That was the main one. I think it’s understanding and because I do it every day, I understand the different types of income protection. I don’t expect everybody else to do so. I think that there is some confusion out there with the different types and different providers providing different things. Hence why I’m saying it’s important to make sure you get qualified advice to take you through that and the difference about are you ensuring the person or the business and that’s where I have been getting some dentists talk to me about and there’s a slight confusion around the criteria and that’s really why I’ve touched on it. So the key person income protection is the business. The others it’s, in essence, a very similar product. It’s just whether you pay for it yourself or the business pays for it. But I try to keep everything without jargon. In Talk to me, I’ll say what it does and rather than just try to blind you with science that a lot of providers can hit you with and jargon if you’re not careful and you can get lost in it. No one wants that. Do they Got you?

Dr James: 

Got you Okay, cool. Well, you know what we like to keep these podcasts punchy and impactful. Just one more thing before we run things off. I’m curious to know, in your experience, what are the most common areas that people get caught out in, and what I mean by that is maybe they think they’re insured, but they’re not quite insured with the thing that they expected things along those lines. What are the most common issues that you come across on that front?

Tony: 

I think income protection is very undersold and, as I’ve said, it’s really important that people have that. People often also think well, I’ve got life in critical illness and we’ve touched on critical illness last time. Critical illness is a massive market but it can vary between, I think it’s 34 conditions or 174 conditions. So you get what you pay for. So it’s really understanding what you have. So I call critical illness cancer insurance, but dependent on the provider, on which policy you have, sometimes it will pay out. It won’t pay out for every cancer and it’s really understanding what you have. Hence why having regular reviews? understanding what you’ve got, but with a lot of it it’s about blending them all together so you can have a little bit more of one and a little bit less of the other. But it’s understanding that it’s right for you and your circumstances. And if you’ve got children now, when you took out the policy in the early days, you might not have had kids and therefore your needs today are different from what they were. So it’s reading the small print but getting somebody else really to cut through all of that and tell you what you’ve got and make some suggestions, what you might not have thought of. If you have kids, I mean I haven’t talked about that, but do you have a will? What about the guardianship? That’s the place to do. It is in the will. But then if your kids goodness forbid that you’re not around and they have to go to your guardians, how are the guardians going to afford to look after the kids? It’s all those sorts of things. So I often start off the conversation in one area and then, once we’re in and we talk about the client circumstances, it leads on to many others. But at least at the end of the day, you then can make a decision based on knowledge and that’s what’s most important. Make sure you’ve got the knowledge and you’re happy that you know what you’ve got and it’s ticking all your boxes. So you’ve got that financial safety net which I keep on about every time.

Dr James: 

Boom. Thanks as ever, tony, for your time today. Looking forward to having you back on the Dennis Toon Invest podcast super soon.

Tony: 

Wonderful, lovely to speak to you all. Thanks for the opportunity, james.