Safety in numbers

Last year was a difficult period and only time will tell what 2009 holds in store. The majority of dental practitioners have now concluded in-depth examinations of practice overheads and are well on the way to implementing cost control strategies.

Substantial numbers of practitioners are mirroring the approach adopted in cutting surgery costs in their own personal lives too. As a consequence, financial outgoings are being reviewed and assessed primarily with regard to necessity and value for money.

Of course, it is well nigh impossible to determine whether or not the payments debited from your bank account represent value for money unless you understand the nature of the payments being made. Now, therefore, might be an opportune time for you to take a closer look at some of the usual suspects.    

Mortgage protection

A mortgage protection policy is insurance taken out so that in the event of your death during your mortgage term, the benefit paid can be used to repay your outstanding mortgage balance. 

Life cover

Life cover is also insurance, the benefit from which, again in the event of your death during the policy term, can be used to pay outstanding loans or to provide a lump sum for your dependents.
So, mortgage protection and life cover provide you with cover in the event of death.  Both are designed with a view to protecting against a situation whereby dependents are saddled with the deceased’s liabilities. 

Preparing for illness

But what about insurance providing cover in the event of illness during your lifetime?  When posed with this question, some will assume that having medical insurance with a company such as the VHI, Quinn Healthcare or HibernianAviva Health is sufficient. However, while private medical insurance may pay for all or part of your medical treatment bills, it will not provide you with any recurring benefit in the event that you are unable to work for a prolonged period of time due to illness.

Self-employed dental practitioners do not qualify for the State illness benefit, which is payable to other individuals at a rate of ?204.30 per week – contingent on them satisfying minimum social welfare insurance (PRSI) contributions.  Notwithstanding the paltry sum, every little helps, and to be denied this basic level of welfare benefit can come as a unwelcome shock at a time when, arguably, individuals will already be dealing with more than enough. Thus the case for private cover to provide benefit in the event of illness remains. 

Income protection and serious illness cover

Income protection cover (also known as permanent health insurance) is insurance intended to provide you with a regular income after a deferred period of time where you are unable to work and your income is affected because of illness.

Serious illness cover is insurance designed to pay a benefit in the event that you are diagnosed and certified with a specified serious illness as defined in your policy documentation. 

It is important to realise that serious illness and income protection cover are not the same. A serious illness insurance policy pays a one-off lump sum benefit on the diagnosis of one or more of the illnesses specified in your policy but will not provide you with an ongoing replacement income if you are unable to work because of long term illness. Income protection, on the other hand, provides you with a regular taxable cash payment, either until you  are able to return to work or you reach your selected retirement age. 

General consumer confusion and the importance of understanding this distinction prompted the Irish Financial Services Regulatory Authority to highlight the difference and, further, to warn that serious illness policies do not provide cover for many common illnesses that have the effect of preventing people from working for prolonged periods of time; a case of being sick, but not sick enough to qualify for payment of the benefit. With serious illness insurance, the clue is in the name. Nine times out of 10, serious illness means a chronic or terminal illness.   

Serious illness cover is often included as an optional extra under a mortgage protection policy. However, where your policy is assigned to a financial institution then, in the event of a legitimate claim, the lump sum illness benefit will be paid directly to the financial institution, reducing amounts owed to them. Notwithstanding the positive impact this might have on monthly mortgage repayments, it is conceivable that, given the choice, the individual might otherwise opt to use the lump sum towards the funding of ongoing medical treatment costs. 

If I was to offer any advice in the context of a healthy individual deciding between taking out a serious illness or income protection type policy, I would recommend the latter.  In the case of a healthy individual seeking to reduce their personal financial outgoings and faced with the choice of cancelling either a serious illness or income protection policy, again I would recommend maintaining the latter. Why? For a number of reasons, but principally:
• Studies suggest that one in every six individuals will be out of work for six months or more during their working life.  One might therefore conclude that the likelihood of being sick for a prolonged period is more likely than becoming seriously or terminally ill, and therefore insuring against the greatest probability represents better value for money 
• Serious illness policies do not provide cover for many of the common illnesses that have the effect of preventing people working for prolonged periods of time. Nor do they provide for cover in the event of an individual being unable to work due to an accident.  Income protection policies generally do
• Income protection policies are usually cheaper to fund than serious illness policies and, as an added bonus, premiums paid under income protection policies qualify for tax relief at 20% or 41%, depending on your financial circumstances.

In a perfect world, all self-employed individuals would have in place some basic income replacement provision in the event of illness. To what extent will depend upon, among other factors, personal circumstances, the availability and cost of cover, and the individual’s age and health status. 

As a minimum, I would recommend a level of cover sufficient to pay your monthly mortgage repayments and to meet day-to-day staples, household expenses and any additional medical costs likely to arise as a result of illness. 

In the absence of a replacement income, for those permanently unable to return to work due to illness, the impact on their standard of living is unthinkable.

Woody Allen famously said: ‘There are worse things in life than death. Have you ever spent an evening with an insurance salesman?’

You may share this view, but it would be remiss of me not to caution that taking it upon yourself to cancel existing policies or undertake new ones without first conducting a thorough review of your personal circumstances could prove costly in the long-run. To this end, I would recommend you consult an independent qualified financial advisor without delay.

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