Independent Financial Review for Dentists
Independent Financial Review for Dentists
As individual circumstances change, regular reviews of your financial protection policies are essential to a sound financial strategy. This case study describes a review I carried out for a BDA member earlier this year.
The BDA member preferred to remain anonymous, however agreed to disclose the facts within this case study.
Background
The BDA member first approached BDA Plus in April 2009, in order to make arrangements for financial protection in the event of illness or injury.
At the time, the BDA member was employed as a Vocational Dental Practitioner, earning 28,500 per annum. Whilst he had cash savings to support himself for a time should he be unable to work, he hoped to purchase a property in the near future. The cash savings would be required for this, so it was appropriate to consider Income Protection as a way of supporting himself in the event of illness or injury.
I assisted in arranging a Permanent Health Insurance (PHI) policy on the basis of 300 per week benefit payable from the first day of sickness, underwritten on an "Own Occupation" basis. In the event of a claim, this policy would continue providing benefits up to the age of 60 (his selected retirement age) or his return to work, whichever is earlier.
It was agreed that it would be appropriate to review this policy once Vocational Training was complete.
Current Situation
I contacted the BDA member in January 2010 as agreed, to arrange a time to review his Income Protection. We arranged a review meeting for 12 o'clock at the dental practice, likely to last 1 and a half hours.
Independent financial reviews always begin with a Fact Find, in order to clarify any changes to circumstances or financial objectives. This identified he was now a 25 year old self-employed Dental Practitioner, with an annual income of 96,000 and no financial dependents. He was also in good health and a non-smoker.
As his annual income had almost tripled in the past year, it was clear that his existing level of Income Protection would no longer suffice and would require a review.
Special Circumstances
The BDA member wanted to increase his provision to the maximum available for his income. My original intention was to arrange an increase in the benefits under the provider of his existing policy. However, the dentist had received physiotherapy due to experiencing backache. With my experience of the market-place, I thought the provider may exclude cover for conditions in relation to his back. Therefore, I recommended making multiple applications; to the original company and alternative providers whom I believed to be more Sympathetic when underwriting.
I provided the BDA member with illustrations for policies from two providers I considered more flexible on underwriting. Both policies included the maximum benefit payable of 2,700, however had one key difference. The first provided a guarantee the premiums would not increase over time other than in line with inflation (or if cover were to be increased), and was available at a cost of 98.63 per month. The second would review premiums annually, in line with the BDA member's age, but costs less at 65.77 per month.
At the age of 25, the BDA member opted for the first option, in the knowledge that premiums relating to age would likely increase beyond that of guaranteed premiums over a long period of time.
On completion of the underwriting, the original provider did indeed offer terms that excluded conditions relating to the BDA member's back. The alternative provider offered terms where the premiums had increased slightly from the original illustration, however would provide insurance in relation to back problems.
Another key difference between the terms offered was that the alternative policy included a waiting period of 3 months before benefits would be paid following a claim, rather than from day one under his existing policy. Given the choice of a longer waiting period or exclusion of cover for back conditions, the BDA member opted to be fully insured.
The Next Step
Before arranging the new policy, I outlined the BDA member's options for remuneration. There are normally various options when paying for financial advice, comprising of the direct payment of a fee, the adviser receiving commission from the provider, or a combination of both. The most cost effective depends on the individual circumstance and nature of advice received.
The BDA member preferred that I receive commission from the provider of the new policy, as this would not lead to a direct cost.
I then arranged the new policy on the BDA member's behalf. It is important to remember that at no point was the original policy for benefits of 300 per week cancelled or replaced, rather that the new policy was an addition to this. The original policy included cover for his back (as this was arranged prior to receiving physio), and would become payable from the first day of incapacity.
The BDA member is now adequately protected against being unable to work due to illness or injury. He would receive 300 per week tax free for the first 3 months, increasing to 3000 per week once the second policy begins to pay out. It was agreed this would meet his financial commitments and lifestyle.
Independent Financial Advice
This case highlights the importance of regular independent financial reviews, whether in relation to protecting your income, preparing for retirement or general financial planning, particularly in the early stages of a career in dentistry. Our team of Independent Financial Advisers are experienced in the requirements associated with the dental profession, and utilise a specialist knowledge of the market place.
If you would like to consider reviewing your financial protection arrangements, or any other aspect of financial planning, call 01823 250750 today.
Notes
Lloyd & Whyte (Financial Services) Ltd is authorised and regulated by the Financial Services Authority.
BDA Plus is a trading name of Lloyd & Whyte Ltd used under licence from the British Dental Association. BDA Plus operates a team of Independent Financial Advisers and Insurance Consultants, providing specialist financial advice and insurance services to members of the BDA.
Calls may be recorded for use in quality management, training and customer support.
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