Insurance Cheat Sheet

Recently, I spoke with several dentists who, due to illness or injury, are on long-term insurance claims. Then I had the opposite conversation with dentists who require insurance. This quick overview is for any dentist who wants to better understand their insurance.

Insurance is probably the least exciting part of financial planning. I would much rather talk about investing in a new share fund than this dry subject. However, insurance is a foundation of a good financial plan. Without adequate protection, an unexpected illness or injury could undo years of financial progress and significantly impact you and your family. Insurance protects you against financial risks you cannot comfortably cover on your own. The challenge is knowing how much is enough.

Here is my insurance cheat sheet for dentists. It is a starting point, as everyone's circumstances will be different*.

Income Protection Insurance

Income protection provides regular payments if illness or injury prevents you from working. After all, your ability to earn an income is probably your greatest financial asset. There are three important things to consider: the waiting period, which is how long before payments start (up to 12 months); the benefit amount, which is 75% of your income; and the benefit period, which determines how long payments continue, such as 2 years, 5 years, or through to age 65 or 70.

There are also two main ways to calculate the benefit.

Indemnity: Your payment is based on your income before becoming disabled. Some policies let you use your best 12 months of earnings over the previous 36 months, while others use your last continuous 12 months of income before disability. You will need to provide financial and medical evidence when claiming.

Agreed Value: The insurer assesses your income and health when you apply and agrees on a monthly benefit. This provides greater certainty about what you could receive if you become unable to work, subject to meeting the policy's claim requirements.

Important Info:

• I recommend Agreed value, a waiting period of up to 13 weeks and benefits to age 70.

• Income reductions won't affect your agreed payout.

• Less uncertainty and worry at claim time

Health Insurance

Health insurance gives you access to private treatment, including specialists, diagnostic investigations, and surgery, and can help you avoid lengthy public waiting times. One of the most valuable benefits can be coverage for non-Pharmac-funded medications, particularly cancer treatments. Some of these medications can cost thousands of dollars a year, or considerably more. However, not all health insurance policies are equal. Companies can differ substantially.

Important Info:

• Most insurers can change policy benefits with as little as 30 days' notice.

• I recommend insurers that offer guaranteed policy wording, meaning they cannot change your existing cover to your detriment.

Trauma Insurance (One-off Payment)

Trauma insurance pays a lump sum if you are diagnosed with a specified serious medical condition, such as cancers, heart attacks or strokes. The money could help with medical expenses, reduce debt, fund home modifications, or simply give you more financial freedom while you recover.

Important Info:

• Enough coverage to ease the financial pressure during treatment and recovery.

Total and Permanent Disability (TPD) Insurance (One-off Payment)

TPD insurance can provide a lump sum for permanent illness or injury if this stops you from practising dentistry.

Important Info:

• Consider enough cover to repay most of your significant debts, such as your mortgage.

Life Insurance (One-off Payment)

Life insurance provides a lump sum to your family or dependants if you die. How much you need depends on your debts, family commitments, existing assets and how financially dependent others are on your income.

Important Info:

• Aim to clear all debts and provide enough income for your family's future needs.

Business or Practice Insurance

If you own a dental practice, your personal income protection usually won't cover both your personal expenses and business overheads. Business expenses insurance can help cover eligible ongoing practice costs while you can't work. The benefit period is usually limited to 2 years.

Important Info:

• Personal income protection and practice overheads are separate risks.

• Make sure both are adequately covered.

• Use a different insurer from your income protection.

ACC

ACC provides income protection only for accidents, not illnesses. Income protection will cover both. With appropriate private insurance in place, ACC's CoverPlus Extra will let you reduce the amount of income you insure through ACC and potentially save significantly on annual levies.

Important Info:

• Review ACC alongside your private income protection.

• You may be able to reduce levies, but get advice before reducing cover.

• See this blog on ACC and income protection.

Review Your Insurance Regularly

This is probably the most overlooked part of insurance planning. Your insurance needs change as your life changes. Your income may increase, you may buy a house or practice, have children, take on debt or more. A policy that was worked five years ago might not be appropriate today.

Important Info:

• Review your cover every 3 years or when circumstances change,

Final Thoughts

Insurance can be a minefield. Different insurers, different definitions, different benefits and plenty of fine print. For the dentists I have spoken to who are on long-term claims, having appropriate cover has made an enormous difference. Unfortunately, not everyone is as well protected as they think, and sometimes this only becomes apparent when they need to make a claim. The aim is not to have the most insurance. It is to have the right insurance, in the right amounts, for the risks that matter most to you.

If you would like support reviewing your insurance or understanding how your existing policies fit together, contact me at ko@tfd.co.nz. You can join the blog below and/or request a complimentary copy of my book, Retirement Planning for Dentists: https://www.tfd.co.nz/book

*This article provides general information. The right insurance cover depends on your personal circumstances.