Insuring your $15 million asset – Income Protection for Doctors.

 

Reassessing Your Most Valuable Asset

When asked about their most valuable asset, many might instinctively think of physical possessions like a home. Yet, for medical professionals, our experience shows that the true value lies in their lifetime earning potential. Due to rigorous training, years of dedicated service and enormous sacrifice, a doctor’s lifetime earnings often range between $5 million and $15 million. This staggering figure far surpasses the value of most assets that most of our clients would own in their lifetime.

Despite this, it’s an intriguing observation that while nearly all clients meticulously insure their homes and cars, they frequently overlook insuring what is arguably their most valuable asset – their income. This oversight can pose a significant risk, as their ability to earn is what fundamentally supports both their lifestyle and their family’s future.

Understanding Income Protection

Income Protection is an insurance policy that provides a regular monthly payment if you’re unable to work because of an illness or injury. It’s designed to replace a portion of your income during periods when you can’t perform your duties (either fully or partially).

A quality policy extends beyond physical injuries and chronic conditions to include mental health matters such as anxiety and depression. It ensures that you have a steady stream of income to cover your living expenses, mortgage, and other financial obligations.

We help medical professionals to consider the some of the following variables and construct a bespoke policy to suit their individual needs.

  • Insured Amount: Typically, you can insure up to a maximum of 75% of your pre-tax income, but this can vary between insurers. This is slightly more complex for self-employed doctors, but an area of specialisation for us.
  • Policy Type: There are different types of income protection policies, such as ‘own occupation’ which pays out if you can’t perform your specific job role, and ‘any occupation’ which only pays if you can’t perform any job suited to your skills and education.
  • Waiting Period: the time you must wait after becoming disabled before you start receiving benefits. A longer waiting period can reduce your premiums, but you’ll need to have sufficient savings or reserves to cover expenses during this time.
  • Benefit Period: how long you will receive payments after the waiting period. This can range from a couple years to until retirement age – often age 65 and sometimes longer.
  • Policy Features: policies come with various features and options. Some offer stepped premiums which increase over time, while others offer level premiums that do incur age-based increases. Additional features like rehabilitation benefits or waiver of premium are considered. Thought should be given as to whether your policy includes inflation protection to ensure that your benefits keep pace with the cost of living over time.

Income Protection in your Super, is it enough?

Not all income protection contracts are built equal. In many cases, insurance held through your super fund – which may include the default cover held when you opened your fund – is a type of ‘group insurance’.

Group Insurance

Group insurance is a type of insurance policy that provides coverage to a collective group of people. The contract is held between the insurer and in this example, the trustee of your super fund. The main attraction of this type of cover is that it is easy to get and relatively low cost (although the price differential between ‘group’ and ‘retail’ has narrowed significantly in recent years).

However, group insurance also comes with its set of disadvantages. One of the main concerns is the variability of policy terms and conditions, which can be altered at any time upon agreement between the super fund and the insurer, affecting all policyholders, including those with existing policies. The coverage provided by group insurance is often less comprehensive, with more restrictive definitions and generally lower maximum sums insured. As the insured individual ages, the coverage often decreases.

Retail Insurance

In contrast, retail insurance is a personal insurance product that is established between an individual and the insurer. Retail insurance policies are characterised by their (typically) more comprehensive terms, which are fixed once the policy goes into effect and are not subject to change. These policies typically allow for higher maximum sums insured and provide fixed coverage levels that can be adjusted for inflation or other indexation methods. Retail insurance offers a range of flexible premium structures and policy options to meet both short-term and long-term insurance needs, and policyholders have the option to appoint a servicing advisor for personalised assistance.

What about Super SA – Triple S income protection?

While Income Protection through a Super SA fund offers a basic safety net, it might not be all that you need as a Doctor. These policies usually provide coverage for a limited duration, often up to two years, and may not encompass private income, which is a significant component of many medical professionals’ earnings.

Legislative Changes Affecting Income Protection

In the past years, the Australian Life Insurance industry has implemented significant changes directed by the Australian Prudential Regulation Authority (APRA) to restore financial sustainability, particularly in Income Protection. These reforms were sparked by a $3.4 billion loss over five years in the income protection sector. The first major change was the elimination of agreed value income protection policies on April 1, 2020, transitioning to indemnity-based policies that require income verification at the time of a claim.

1 October 2021 marked the introduction of new, sustainable income protection products and the closure of existing policies to new business. Current policyholders with grandfathered plans will maintain their existing terms. The interpretation of APRA’s guidelines has resulted in a diverse range of benefits and features, adding complexity to the process of obtaining or modifying income protection insurance. Differences include the maximum insurable monthly benefit, the definition of disability, and the assessment of pre-disability earnings.

Taking Action

Income Protection is a pivotal element of financial planning, particularly for medical professionals whose earning potential is their cornerstone asset. It is vital to assess your current policy to ensure it offers sufficient long-term protection. For tailored advice and to secure the appropriate coverage, please contact us for an initial discussion.

 

This information is general advice only and does not take into account your objectives, financial situation and needs.  Before making a financial decision based on this advice, you must consider whether it is appropriate in light of your needs, objectives and financial circumstances, and where relevant, obtain personal financial, taxation or legal advice.  Where a financial product has been mentioned, you should obtain and read a copy of the Product Disclosure Statement prior to making any decisions.