|
If you have nothing else, the one thing that you should have in your financial armoury is income protection.
Income protection and critical illness are often confused but they are very different.
Most people are reliant on their income stream. If this were to be turned off, for many they would lose their financial independence. Even worse they could lose their ability to provide for their family. It therefore makes sense to protect your ability to work.
Income Protection
In essence, income protection looks to replace your income if you’re unable to work through sickness or illness. It pays an income stream as opposed to a lump sum.
When is the best time to take out income protection?
People often argue before you embark on the property ladder or start a family. I would argue that it’s a few months before the onset of an illness. If you know when this will be, then you should consider a different line of work!
So, in the absence of such information, the younger you are and when you have your health is the best time.
There are providers that offer contracts that are aimed specifically at medics, taking into account your sick pay through to options if you decide to take a sabbatical.
The most important facet of your contract is that it should be based on the ability to perform your own occupation, not just as a doctor or dentist but taking into account your speciality.
There are many contracts that do not offer this high level of cover so it is worth checking.
Premiums are often cheaper than most people think and these days are often less than most peoples’ mobile phone bill or a tank of fuel.
If you have cover in place, it’s also worth checking that it still reflects your income. Due to the incremental nature of your income, it can often outpace any index linking built into the contract.
Critical Illness
 Unlike income protection, critical illness offers a lump sum on diagnosis of specified medical conditions. It is often associated with covering liabilities such as mortgages.
It’s also advisable to check the details on the contract.
One of the terms, which can sometimes look innocuous but carries a lot of weight, is what is known as the total and permanent disability clause.
This tries to be a safety net where by, if it looks like you will be unable to return to your profession and yet the condition is outside the contractual definitions, you can make a claim.
As with income protection, it is important to ensure that your critical illness covers you under your own occupation. There are only a few providers who cover surgeons and dentists left in the market place.
Income Protection or Critical Illness?
We often get asked which is the better cover to have in place. I would always advise a combination of the two as this is the most comprehensive.
Whilst there is a degree of subjectivity, if I had to choose one, I would recommend income protection. It has a wider definition in that its based on your ability to work and protects your income, giving you the ability to continue to support yourself.
Article by Max Spurgeon
IFA and Director at Legal & Medical Investments
May 2011 |
News & Views 
