Dr James, 0s:

Insurances and also life insurance are not most taxi products overcome to dentists, but here's why it's so important to discuss them is because a lot of us have it and we're overpaying for it. That's why I'm joined today by expert financial advisor to dentist, Mr. Anick Sharma. We're gonna be talking about life insurance, how you can save money if you're going to go down the path of obtaining a policy, and also how if you already have a policy, how you can save money and also make it more tax efficient as well, because that stuff is easy when you know how looking forward to this episode as ever. I'm also happy to share that there is free verifiable CPD associated with this podcast episode. Whenever you finish the episode, all you have to do is click the link in the podcast description. It'll take you right to the Dentists Who Invest website. You'll be able to complete a short questionnaire, and once passed, you fill in your reflections and we'll go ahead and email over to you your verifiable CPD certificate, which is entirely free. What that means is this podcast episode will be able to contribute towards your verifiable CPD hours during this learning cycle. Anick, let's talk life insurance because a lot of dentists have it, but they may not be covered correctly. True or false, would you agree?

Anick, 1m 17s:

100% true. It's quite funny, James. So anytime you go on the plane, you're always told put in your oxygen mask first for helping on others. Now, when we think about the future and protection, life insurance, protection is essentially that oxygen mask for financial independence. And without it, one unforeseen circumstance or not planning could potentially lead you to being forced to sell your assets or derail your plan and leave your family exposed. Now, financial independence, and we'll get on to life insurance properly in a moment. It's not just about the planning mechanisms, compound interest, and index funds. It's all about protecting the plan so that you can stay invested long enough to succeed in life essentially and live the life that you want. So when we think about life insurance, it's it can also be viewed in a framework of it accelerating financial independence and not just accelerating it. So by having a protection piece in place, you can get there faster because your downside is ring fence, essentially. So if your family's needs are pre-funded by insurance, you don't necessarily need to oversay the larger what-if figure or buffer, sorry. Your target financial independence number could be leaner because catastrophic risks are transferred essentially to an insurer. Now, we can get into the realms of what that might be and how it's combined. But for example, someone might only need 900,000 when it's combined with a suitable life protection policy instead of their target 1.2 million. Um, the cover might substitute a otherwise bigger cash reserve, essentially. Um, people often uh underestimate the life protection elements. And sometimes, in my experience anyway, they'll just try and cover the mortgage. Now, having a life protection policy for the family can help that ease the burden that naturally happens in a in a horrendous situation. Um insurance is it's the return amplifier for your investments, essentially. Because it it lets your investments and pensions and equity stay invested throughout the the life's um policy of of what happens. So one of the benefits with insurance is that the peace of mind it can bring can give you clarity and the calmness to execute on the plan. So as humans, we naturally have optimism bias. We underweight bad outcomes and delay action. I've seen situations firsthand where dentists have said, yeah, Anick, don't be silly. We will we don't need to consider insurance and the earnings are coming in high and the family's living a good lifestyle, then all of a sudden something horrendous happens. We should be thinking about it in terms of making your shoulds a must, and that a lump sum only cover might still force you to downsize if income vanishes or the peace of mind from getting the structure right. Because if you protect yourself first, then everyone else benefits. So by having a life insurance policy in place, you you protect the family from what might happen in the future. Now, those that have listened to the podcast before or listened to me speaking on the podcast will know about knowing your number and defining enough. Well, insurance can help narrow the variables down so that your numbers are a lot cleaner. Naturally, when we we look at the lifelong expenditure, there are variables and different um different outputs, the range of outcomes that can happen. But by having that safety net of insurance, it really helps to narrow the focus down. And that then can reduce the dependency of the assumptions and reduces the the amount of stress. Now, there are various ways life insurance can be drawn up essentially. So for example, you might decide to have a level term or which means that the summer short, i.e., how much is paid out is the same, or might decrease. Now, quite often when policies are initially set up, people might not realize what they're actually putting in place, whether it's level or decreasing, or maybe increasing by inflation. And if it's level, that essentially means inflation is going to be eating away too. So by the time, or if it ever does have to pay out, you're actually left with a lot less than than was thought because it doesn't buy you as much stuff. Now, without getting under the bonnet of it or not paying attention to what's going on with the policy, it can be really easy to overlook the the key uh points of the policy. Again, some people may have set up a life insurance policy jointly, or it could be two single lives. Again, both have their merits, but it's it's important to check and make sure that the the policy is suitable for the individual. Because if it doesn't align with planning needs, then it can be it can be an expensive and emotionally painful decision or issue consequence down the line. Now, when we get clear on our number, we can then start to quantify okay, what amount of cover would need to be in place so that the family never needs to worry about money in the future, for example. Or if I were to die, um how much does my spouse need and the children to to uh keep the lights on? Because protection turns bereavement chaos into a predictable lump sum that keeps the roof on and the kids in school so that without it it it can unravel everything. Now, in terms of the outgoings, people say that they don't want to pay the premium and fine. But once we can start to to understand our number and what we need, we can hard code the outgoings, and by that I essentially mean the a clear quantified monthly premium simplifies cash flow, essentially. Because when protection is set as a fixed expense, it's uh it's a non-negotiable line that protects financial independence. The the the clarity reduces decision and it improves that the savings consistency. It whenever we uh apply and implement an automatic rails rules-based system, sorry, um, it it takes stress off our desk. And essentially it's the the premium is the price of keeping your investment strategy or your financial plan autopilot. So getting used to that outgoings to to provide the safety net for financial independence is critical. Because without it, we can we can look at the most portfolio optimized strategies and we can look at various complicated planning levers. But without that safety net, it can all come crumbling apart. Now, particularly for Dentists.

Dr James, 9m 1s:

You know what? Just to jump in on one thing that you were saying just there, I mean, I guess something that I'd never thought about before was how it can actually speed up the date at which you achieve financial independence because you all of a sudden don't need as much of a protection buffer. Or you sorry, when I say protection buffer, what I what I mean is financial buffer by way of by way of it reduces the amount that's necessary for you to have in your bank account to achieve financial independence because that extra buffer that you would have over and above that which might be there for your dependence is no longer uh well, it is still necessary. It's not that it's no longer mess necessary, it's just been delegated or mitigated to the insurance. UK dentists, if you are just starting out on your investment journey or you're already investing and want to know if your strategy is 100% foolproof and optimized to reduce fees and maximize growth, then you might like to know. I have teamed up with independent financial planner Luke Hurley to create the dentist to invest academy. Dent to invest academy fully documents the process that a financial planner would normally perform for a client behind the scenes and reveals it to you. This means that you can implement it into your own life, therefore pulling your financial freedom data forward by years. If you wish to set up and manage your own investment portfolio, then this is designed to give you all the tools and knowledge you need to perform this properly. This means that when viable and appropriate, you will have the know-how and skill required to build and manage your own investment portfolio, plus ensure that it is 100% optimized. If this sounds like your thing, then keep an eye out on the Dentists who invest mailing list where we'll be announcing the details of the next intake very soon.

Anick, 10m 44s:

Yeah, 100%. And like I mentioned before, instead of having a needing a £1.2 million pot to achieve financial independence, it might actually be 900 because the rest is covered by that life policy. Um, but of course, as with everything, it's all contextualized and underpinned by having a robust financial plan, kicking the tires on it, making sure we're happy with with what that looks like before making those decisions.

Dr James, 11m 12s:

Nice. Anyway, you were in filtering there.

Anick, 11m 15s:

Um yeah, so one thing for dentists, given their their typical structures and limited companies, quite often I see individuals having personal life cover, which is great as a start of a tent. But often it it's important to do a bit of an audit and consider what policies have we got in place personally that could be put through the business. Because essentially that's keeping it tax efficient, and we're we're we're able to offset various bits. So for example, some people might do a relevant life plan, and that basically is a employer deductible expense from from the limited company, and there's no P11D benefit, which is a personal taxable benefit in kind, essentially, which is it's really useful for dentists. I'm not sure, James, if you've come across that before.

Dr James, 12m 10s:

Uh well, I mean, only through every only through talking to you guys, uh yourself and Luke, because uh prior to that I hadn't. But yeah, that is effectively tax-deductible life insurance, correct?

Anick, 12m 23s:

Yeah, that's right, exactly that. Um so at the very least, I'd say to all the listeners out there, have a look at the the policies, make sure it stacks up for what you need it to be, levels decreasing, etc., like I mentioned before. And then have a look at whether policies can be put through the limited company and whether you don't need to pay for it personally. Um it can often be a very neat planning planning exercise to go through.

Dr James, 12m 54s:

That that can be a massive saving right there, and it's worth noting that it's often a good idea to review these policies whenever there's some sort of change in life circumstance because there could be more effective ways of doing it or you could save a ton of money, correct?

Anick, 13m 9s:

100%. Um I I've mentioned this analogy before, but it's a bit like saying I'm in London and I want to drive to Edinburgh, you have Google Maps on your phone. And that initial Google Maps plot is getting everything set up, getting the policy sorted. Now, if a road close sign happens, a road diversion, it's very easy to become lost as life throws its inevitable curveball. So it's exactly as you say, it's so important to check in regularly, make sure that we're adapting to life's changes, and that the policies of whatever we have in place are still fit for purpose, I'd say.

Dr James, 13m 47s:

Well, it's worth mentioning that they can actually become invalid sometimes, depending uh on a change in your circumstance as well. And crucially, it's it's free to have an audit and double check things are all right. Sometimes the answer is yeah, you're doing everything correctly, there's nothing to be saved here. Uh, whereas sometimes it's quite the opposite, is that it's it's something along the lines of this is you're paying for something that's potentially no longer valid, or you're overpaying for it potentially too, uh, of course, as well. Because uh I'm correct in saying uh I know uh the the income protection buffins tell me, Annik, that whilst a lot of policymakers their stated intention is that it's supposed to grow uh your the the your your premiums every year are supposed to grow in line with inflation. Sometimes they jack them up a little bit more than that to increase their profit margin. Uh so therefore it can be the case with time if you have a policy that's been around for like five to ten years that you pen way over the odds for what it actually is. Is life insurance the same?

Anick, 14m 50s:

Short answer is it it depends on how it how it's set up. So, with that example you mentioned about income protection, you really need to talk to someone who understands what's going on because you might have two different policies that you're looking at initially, and policy B might be a lower premium initially than policy A. But under the bonnet, policy A may increase their premium by inflation plus 1%, for example. Whereas policy B might increase it by inflation plus four or five percent. So, although policy B starts off cheaper initially, over the course of our lifetime you're gonna pay more. So, when it comes to any other policy, it's so important you you deal with someone who understands the mechanics and what's going on under the bonnet of it. So over a course of a lifetime, you are keeping costs down as much as you can. Another point on that as well is depending on the life policy in place, sometimes it can be there to mitigate inheritance tax. So on the death of a second individual, say who's married, inheritance tax may be due. Now, some people decide to take out life insurance to cover that so the the the kids or whoever else don't have to fork that out of the estate. I've seen situations before where people have tried to go down this road on the on their own and they haven't allocated the proceeds to be paid into a trust. And that's really important from a planning consideration because essentially that life's life insurance amounts will be paid into the estate, which means inheritance tax is lending on the sum assured. So you've basically just added to the problem. So getting the structures right ahead of time is just as important as making sure the policy terms and conditions are set up. And it can be so expensive for not just you but the kids and maybe knock on implications thereafter. The the the the other thing with that as well, so just to summarize some of the mistakes we see over only insuring the mortgage, um which fine, the house might still be there, but what about the cash flow? And often having an initial life insurance teamed up with maybe an income replacement or another life insurance policy to provide a lump sum can be useful. The trust point I just mentioned before, big, big mistake we see a lot of the time. So have a look at that as well. Some people may take out a joint decreasing term policy by default, um, which means the survivor is left uninsured and undercovered. Um, so depending on the household makeup, it's important to align that with the policy. And then employee benefits, what could be put through the company and any other benefits that might be in existence? So, for example, the the have a look at the NHS um benefits for those that are members of the pension. Important to factor that into our financial independence plan. The the other thing is we as a behavioral side, we need to move it from should to must. So it's morbid, I know, but ask ourselves if I were to die tomorrow, uh is the current setup sufficient? Is my income replaced or is it just the mortgage? Um, will the family be okay? Is ask ourselves too, um, are the policies set up in trust? If not, look at fixing it. Then for those that are running their own company, ask yourselves, are you paying for something that could be put into your company more tax-efficiently? Um, and then look at the the term uh and all the nuts and bolts under the policy details. Do they align to your life circumstances? I guess the the final point I'd make on this is that financial independence isn't fragile if you're hardened the downside. If you protect the plan, the plan protects you, and that is so important. We deal with this day in and day out. So for those that are interested, feel free to reach out to me. Our website is bedarefinancial.com or find me on LinkedIn, Anick Sharma. Um more than happy to have a chat and go from there.

Dr James, 19m 38s:

Or of course the Facebook group as well. Uh search Anick Sharma on there, Dentistson Invest Facebook group. Shout out to that for anybody who's not yet involved. Anick, thank you so much for your time today. Looking forward to catch up again soon.