The medical profession may help rehabilitate people when they suffer a disability, but what happens when doctors get ill? Helen Collins explains how income protection provides essential cover for medical professionals
Members of the medical profession are a special case when it comes to financial planning. Not only does this apply to pensions where the options available to doctors in NHS general practice are especially complicated, but it also extends to income protection (IP).
Certain providers have invested time and resources in developing products tailored specifically to meet the life and healthcare cover needs of the medical profession. However, there are three particular ways in which doctors can benefit from IP: replacing salary or fee income lost through disabling illness or injury; meeting the ongoing costs of running the practice; and paying for locum hire.
Although doctors, who work for the NHS, may belong to the National Health Service Sick Pay Scheme (NHSSPS), the benefits may not be as generous as they might be. The payments available depend on the number of years since qualification and in the early years are limited. Even later on, the benefits may only match a full salary for a restricted period before reducing to a more basic level.
Top it up
There is often, therefore, a strong case for recommending private top-up IP cover. The additional benefits, which may be linked to the Retail Price Index (RPI) if required, will be payable free from Income Tax and can be arranged to kick in just when payments from the NHSSPS are due to decrease from their starting level. What is more, the inclusion of cover for incapacity arising from HIV/AIDS, contracted during occupational duties, is of particular relevance to members of the medical profession.
To qualify for a replacement income, claimants usually have to prove they are unable to perform any part whatever of the normal duties of their occupation. To help them on their way to recovery and regaining their full financial independence, a proportionate benefit is often payable if they have to take up a less demanding and lower paid position than before. A rehabilitation benefit may also be on offer, to assist claimants to gradually return to work.
Many general practitioners (GPs) effectively run their own businesses. If the sole practitioner or one of the partners is unable to work due to illness or injury, will the surgery or health centre still generate the income it needs to cover its fixed overheads such as the rent, utility bills, staff salaries and the interest on any commercial mortgage, or other borrowings? If not, does it have a large enough cash reserve to see it through such a time of crisis?
Perhaps it has a credit facility from its bank. However, this may be expensive, and where is the money to come from to service the loan? Fortunately, there is an alternative: a special form of IP insurance designed specifically to cover the expenses involved in running a medical practice.
This third variation on the IP theme is closely linked to the second. It is designed to cover the costs of hiring a locum. If a doctor is not well enough to look after their patients, the practice may have to bring in a stand-in who can carry out the day-to-day duties until the disabled professional is well enough to return to work. The benefits from the IP plan are designed to cover the remuneration costs.
All three forms of IP can be arranged to dovetail together, as the case study shows.
The Government's plans to improve the NHS, for which we are all now paying an extra 1% in National Insurance contributions, include the recruitment of many more doctors for general practice. A modern purpose-built package of IP can play an important part in helping to retain the services of medical professionals who are already in the field.
Helen Collins is IFA marketing manager at Liverpool Victoria Intermediary Division
Case study
Dr Mary Bone, Dr John Foot and Dr Alastair Legge are partners in a busy general practice in a provincial market town. They all decide to follow their IFA's recommendation and apply for the three types of inter-linked IP cover. The various policies are arranged to run to the partners' expected retirement age of 60.
What about the tax position? The fiscal treatment of the plans intended for straightforward income replacement is as one would expect: there is no tax relief on the premium outlay and claim benefits are payable tax free.
But the situation for the other policies is different. Premium payments should qualify as a business expense, our three medical professionals being able to claim the tax relief through their annual assessments. They cannot have it both ways, however, and any claim payments should be taxable in the hands of the individual recipient.
Two years after their plans begin, John Bone is left with severe spinal injuries following a car accident. The neurological specialist at the hospital where he is admitted considers that his patient will never be able to walk again. John will be confined to a wheelchair for the rest of his life. However, depending on how he adapts to his condition, John may be able to resume many of his old duties as a GP, although house calls are likely to be out of the question.
John makes a claim on his IP policies and this is admitted promptly. After a short four-week deferred period, two of his three IP plans start to pay out. These are the ones intended for business expenses and locum cover. Interestingly, they do not include any waiver of premium facility. Instead the cost of the IP insurance is treated and covered as one of the business expenses, so that it is paid back to John as part of his claim benefits.
The money from the two policies is applied exactly in the ways intended: as John's contribution to the day-to-day expenses of running the practice - in this scenario, these include the cost of servicing a commercial mortgage - and providing the financial means to hire a locum. John has sufficient savings set aside to meet the short-term living expenses of himself and his family
The benefits under the two policies are payable for a maximum term of 52 weeks, which matches the deferred period of the plan intended to provide basic income replacement protection. This third policy then provides a flow of money that is enough to keep John and his family going, even after allowing for his share of the practice costs.
Eventually he is sufficiently recovered to return to work. John does this by gradually, working half-days at first before resuming his professional and partnership responsibilities in full. The plan pays out reduced benefits during this transitional stage.
John is also fortunate in that his two partners are understanding and co-operative. They agree he should be relieved of visiting patients outside normal surgery hours. Although John is confined to a wheelchair, there is no need to make alterations around the premises, such as constructing a special ramp, widening the doorways and installing a toilet for the disabled. Being modern and purpose-built, the surgery buildings have these facilities already.
Source: Liverpool Victoria
COVER notes
• IP can be arranged for medical professionals so it dovetails with benefits received from the NHS Sick Pay Scheme.
• Cover for HIV/AIDS contracted at work is of particular benefit to medical professionals.
• Cover for running a surgery and hiring locum is also available to GPs while they recover from a disability or illness.
