Dr James, 1s:

Who is the best insurance provider when it comes to income protection and all the important things that us dentists need when it comes to ensuring that we have an income despite the fact that we may be unable to work for whatever reason. That's what we're here to talk about today with regular guest mr, mr, mr Warren, Robins Warren, how are you today?

Warren, 22s:

I am fantastic, James.

Dr James, 23s:

Thank you, uh yourself I'm good mate, I'm always good. Thanks for asking, Warren. Let's cut straight to the chase. Who's the Robins Warren? How are you today? I am fantastic, James. Thank you Yourself. I'm good mate, I'm always good. Thanks for asking Warren.

Warren, 31s:

Let's cut straight to the chase. Who's the best insurance provider? The $64,000 question Well, I think it's fair to say that that's very much a matter of opinion. What you'll find is that you can speak to different people, and different advisors and different people who have policies will tell you which insurer they think is the best one. You see statistics which might suggest that one insurer is better than the other, but I'd be very, very careful when it comes to statistics, because it's lies down lies in statistics. Insurers show you quotes for their payout rates. Now, they don't all use a standardized system, so you might well find that the headline rate of a very high payout percentage is purely because of the method they use when they record their, their queries. Um, so for me, it's not about which insurer is best. The key thing is if you want to make sure that, if you're going to make a claim on your income protection policy, you get paid out rather than be one of the rejected statistics. It's about setting your policy up correctly and that's the key thing. So for me, it's not about which insurer is best. It's about making sure you set up your policy correctly to get the best value out of it and make sure that it's valid.

Dr James, 1m 45s:

That's the key thing. So maybe it's about looking under the bonnet and looking past the statistics and listen. Dentists are so familiar with that because there's so many variables in dentistry whenever it comes to the bet, the best inverted commas treatment, and we all know, we all have, we all have a nose for being able to detect in dentistry that one study can say this and one study can say the complete opposite. And there's so many variables in there with regards to how the study is designed, the scientific method, the materials that they use blah, blah, blah under the sun. So we all know that happens in dentistry. So I guess it's intuitive that it happens in other areas as well. We've already been trained to look out for that, to use our powers of deduction and scientific inquiry to spot that. So it makes total sense what you're saying. Perhaps a better question is what parameters go in to making a good policy and how can we enhance our nose to detect that. Maybe that's a better question.

Warren, 2m 37s:

Yeah, yeah, 100%. I think not only does it make sure that you've got a policy that is going to be valid so not only does it make sure that you've got a policy that is going to be valid, but also making sure it's set up correctly is going to give you much better quality cover and make sure that you're not overpaying, Because it's surprisingly easy to end up paying a lot more for a policy that might not actually do what you want it to do if the worst thing happens.

Dr James, 3m 4s:

So setting the policy up correctly is key to getting good value for money. And just to be clear, I have a question actually Is this specifically for income protection or is it more broad and that as well? What do you think will offer greater value today if we focused on income protection, because that's what everybody has? Are we talking a broader sense? What do you reckon Because I'm free and easy over here what do you find?

Warren, 3m 20s:

Yeah, in terms of setup, I think income protection is probably the most complicated policy to set up and I think that's one of the reasons why, if you look across people in general not not dentistry particularly but if you look at the, you know the uk market as a whole there's a lot less income protection sold than there is critically on this cover. But if you look at the claims that are paid out for Income Protection, 60 percent of the claims that are paid out for Income Protection claims are not covered by critical illness policies things like mental health, musculoskeletal injuries and stress type things. So with the vast majority of insurers, so you have a much more comprehensive product with income protection than critical illness in my view. But it's also a lot, a lot easier to get it wrong. So understanding what goes behind the choices of how you set your policy up is key to making sure that you've got a policy that's going to do the job properly understood okay and you know what.

Dr James, 4m 22s:

That's a really nice segue into the next thing that I had in mind, which is how can we go about discerning what is a good income protection policy versus a not so good one or maybe not even good and bad, necessarily just what's the right one for us?

Warren, 4m 39s:

If you look at the various parameters that are involved, you can break them down. So there's around about a half a dozen different parameters. So if we started with, say, the deferred period, that's the waiting period from when you're incapable of working to when the policy payments will start to kick in, you can go from day one, so you cover even sort of colds and sniffles and a bit of flu. You can go through to 12 months or even 24 months with some insurers, um, as a waiting period. Now I come across dentists where they tell me that they want to make sure that they're covered for any absence from work. Um, and the the rationale behind that is they want to make sure that they're not losing any income because they want to make sure that, whatever happens, they got money coming in. Um, the idea that they're not losing any income because they want to make sure that, whatever happens, they've got money coming in, the idea being they're not going to miss out on some income or some benefit. If you compare the cost of those policies that appear from day one, they're a little bit expensive. So I looked at an example policy of around £3,000 through to the age of 65 for a 35-year-old dentist, non-smoker through to the age of 65, for 35-year-old dentists non-smoker. Now, a policy with day one cover the best value policy you can get is going to cost you £195 a month and the total cost on that over the policy term is around about £152,000. So it's going to cost you a few bob. Now, if you compare that to a policy with a three-month waiting period, you're looking at something that has a total cost of 70 000 pounds. So you're going to save 82 000 pounds in premiums just by having a three-month waiting period. Um, but even you know, not everybody wants to have a three-month delay. They want to get paid out quicker. So if you've got no sick pay and you've got no nhs dentistry work, so you've got no sick pay provision, you're just doing private. You might want to consider a shorter waiting period. So one month is probably the most common short-term waiting period that you get and most insurers offer that. And even at that you are looking at something that is going to save you a massive amount of money. You know sort of £70,000, £80,000. And that's before you actually then think of. That's just the savings. If somebody gives you that money over 30 years, what are you going to do? You're not going to put it under your pillow, you're going to invest it and by investing that you're going to grow that. So that figure, probably in terms of a lump sum, you'll end up with about 200k if you get a half decent return. And then you've got to think is day one versus one month waiting period? How many times would you have to be off work for a month to get enough income from the insurance company to make up 200 000 pounds? Now, with a three grand policy, the average benefit of the cross policy term is about 5300, so you're looking at about 37 38 times you'd have to be off work for a month in a 30-year policy term, um, I think the reality is if, if that happened to you, either you've got some serious health condition, um, or the insurance company is going to be checking you for fraud, so it's going to cost you. So it's unlikely under any circumstances that having a day one policy is actually going to sort of put you in a better financial position by the end of the policy term compared to any longer waiting period. And the money is always better in your pocket than the insurance companies. That's my motto.

Dr James, 8m 3s:

Seems reasonable. So deferment period did I use the right terminology there? Yeah, my motto seems reasonable, so deferment period did I use the right terminology there? Yeah, yeah, deferment period, deferment period so that's a parameter, and you know what? You said there was six just then. That kind of reminded me of cricket right.

Warren, 8m 18s:

Yeah, not a good subject after the england test match recently oh, oh well.

Dr James, 8m 22s:

This is where. This is where my cricket knowledge lets me down. I know that they hit sixes and fours in cricket, but I'm not up to date with contemporaneous occurrences in cricket, so commiserations to the England team whenever it comes to the cricket side of things. I was not aware of that. That was not a snide in any way or a slight to any cricket fans in the audience. But yeah, you know what Warren knows his yeah, what else would you think?

Warren, 8m 50s:

Okay, looking at type of premiums. So the starting premium on a policy is never a good guide to how much the policy is going to cost you over the policy term. And this is something I'm talking about the level guarantee premiums. Now, just to clarify what that is, that's a premium that, if the cover doesn't increase, the premium will never change. So there's a massive range of real costs with that type of policy and the lowest starting policy may cost you a lot more over the policy term. Now, if you just look at every available policy, the cheapest premiums normally will be a policy with some form of discount. The most common one is age-costed. Now, these are fairly common, with the friendly societies more so, but with those they effectively start with a built-in discount. So they start off very cheap and even if the cover doesn't increase each year, the premium normally gets more expensive. And in terms of how much more expensive over the sort of policy that we were looking at earlier, the 30-year for a 35-year-old with some of the insurers, the premium will increase by a factor of eight over that 30-year policy term, just because you're getting older, of eight over that 30-year policy term just because you're getting older. And if you then look at applying the cover increases and I always use the 3.6 percent annual cover increase because that's the long-term cost, the average cost of living that most insurers use when applying their cover increases I'm at about 2.8 times additional increase in the amount of cover. So you'd end up with something like a 22 times higher premium than you started with if you go for an age-costed, whereas with a normal guaranteed premium you're looking at about six times. So some quite a few figures here, but essentially it's the classic false economy. So if you go with something that's age-costed massive discount built in it will cost you a lot more. And there are some insurers that offer both types and they show graphs which demonstrate the fact and they admit if you go with this one it will cost you a lot more. The type of job where you might consider going for that, where it's appropriate, um certain professions, and not for dentistry, maybe in the early stages of dentistry, if money's tight, you can get a lot more cover for your pound of premium. Trainee solicitors are a great example. They know that their income is going to go through the roof, but they're quite badly paid in the beginning. So in that situation. Maybe it's a short-term measure to be able to afford the cover that you want, knowing that you're going to change it in the future, but long-term I generally don't think they're a great idea. Now, a second variation of the discounted premium is the odd insurer where they offer a health-based discount. They make an assumption that you're going to live a risk-free life, you're going to look after yourself, You're going to do loads of exercise, your health is fantastic, and on that basis they give you maybe a 20% discount up front. Now what they make less clear sometimes is that you have to work your way through a series of levels by earning points to get from level one, two, three to four. And only if you get to level four do you not get an a bigger increase on your annual premium. When they apply the annual cover increase um, and you can end up paying a massive amount more um because the average person gets to level two and you've got to get to level four to not be penalized and lose that initial discount um. So I'm not going to to name names on that, but I had a policy myself um with one of the companies that offers this type of cover and at the point. I was massively into my exercise, so I was running, cycling, weight training, you name it um, and I was right and I actually got to the top level, level four. Then they moved the goal posts used to get 10 points per exercise session and they decided it was going to be eight. So you had to, instead of doing four sessions a week to get your maximum points, you had to do five. Um, and all sorts of things changed and it got progressively harder and in the end I got to the point where I just couldn't do it anymore. So beware with what seems like a good idea. Even if you're super fit and active at a young age, you've got to be thinking if you've got a 35-year policy, are you going to be doing that same level of exercise that you are when you're 50, 60, et cetera, and for most people, best one in the world? It's not going to happen. So be aware of those. And when you see the additional cost, you might get some discounts and rewards and free coffers, et cetera, but you've got to get a lot of free coffers to justify the extra premiums that it can potentially offer you, particularly if you get to the average level, which is level two across the board. So yeah, so choosing, I guess, where I'm going with avoid the discounted premiums, because it's false economy. You're better off taking a policy that's level guaranteed and then the only changes to the premium are due to you have an extra cover. And if you don't have the extra cover, if you turn it down one year, the premium doesn't change. It avoids any nasty surprises.

Dr James, 14m 15s:

Something to watch out for there. Okay, cool. So those are two biggies right there, and maybe when you said six, that was more metaphorical than strictly speaking. There were six earlier.

Warren, 14m 26s:

No, there are more. I mean in terms of you know, how long do you run the policy to? I mean, that's something that on the surface, seems incredibly simple. So it's very common that somebody will say, right, I'm retiring at 55. I don't want to be working as a dentist past 55. So my policy runs to the age of 55. It seems completely logical. But then if you drill down a little bit and ask, okay, well, what, what are you going to have to do to be able to retire at 55, and say, well, I'm going to earn this money, I'm going to invest it, I'm going to make sure I'm careful with it. Um, so essentially the answer is I'm going to be earning my full income as a dentist up to the age of 55. I'm going to invest like a bugger, which is where, where, if they're smart, they're on DWI looking at dentists who invest to work out how to do their investment strategy and get some tips.

Dr James, 15m 16s:

Sorry, dwi, have I mentioned that before in this podcast.

Warren, 15m 19s:

Don't think you have no.

Dr James, 15m 21s:

Once or twice. Once or twice. Sorry to barge in.

Warren, 15m 24s:

And then you sort of say well, what happens if, in two, you injure yourself, have an accident and you're no longer working as a dentist and your income has gone from £100,000 a year down to £50,000 a year through an income protection policy? Are you going to accumulate enough money on that income to retire by the age of 55? And the answer is generally going to be no, because I'm not going to be able to accumulate enough wealth. So, rather than sort of strictly fit it to your planned retirement age, if you have a number of years on maybe five years or so you then have another five years of income where you've got more money coming in over a longer period to accumulate some wealth, and you've got another five years for good old compound interest to build that money. So, potentially, when you get to 60, you've been relying on the income if you're not working as a dentist and then you've accumulated enough wealth to have a reasonable retirement, and if things don't go that way and you've worked till 55 and you've accumulated your wealth, you just cancel the policy at 55 as the ideal scenario. So, essentially, by extending the policy term past where you thought you would need it, it's almost like you're buying an option.

Dr James, 16m 37s:

you're buying an option for something that may or may not happen, which is something you get in financial investments all the time, something just in the process, you know, something just popped into my head and it's interesting because you see the synergies between the different fortes in finance. Sometimes it might even be worth getting a financial planner involved to figure out, like, when we start this, when we stop this, and I guess yeah, yeah I actually I that only really popped into my head when you were talking about just then and it just shows you the subtle depth to this stuff. And, by the way, if anybody listening to Financial Planner will be able to answer those questions like when can I retire? And then you can adjust your IP policy based off the back of that.

Warren, 17m 13s:

Yeah, actually that's a great point Because you say when can I retire if I'm earning my full income? When could I retire if I'm relying on this for 20 years, my income protection policy payout? So that's a really good point. I guess the one variable you're never going to know is you know, is something going to happen and if so, when is it like it's happened, because that's a complete unknown. But in terms of one of the other variables which seems pretty obvious is how much cover you take. Now, a lot of people, when they look at how much ink protection they're going to have covered per month, they have a good look at their outgoings. So they're saying I'm going to cover my mortgage, I'm going to cover all of my other essential bills, and maybe I want X hundred pounds to cover my luxuries, I want to have the holidays, et cetera, and often that is as far as the thinking goes. But again, linking back to the retirement, think about do you want to retire? And if you're relying on the income purely from the income protection policy, it makes sense to have some sort of retirement money provision as well. So it's not just about covering the here and now. If you're off long term, it makes sense to have some sort of provision to cover those, um, the money that you want to put away and start building for your retirement, because if you don't, you have a lovely lifestyle up to the policy finishes and then you're going to be maybe reliant on the state pension, which, um, good luck with that if you've been living the lifestyle of a dentist, so, um, so it's thinking about drilling down. You know what do you need to cover, what are your essential outgoings, and do you want to cover essential outgoings plus maintain a good level of lifestyle? And it's not just now. It's like you. If you're young children, you may be sort of planning for them to go to private school. So do you take additional cover now, knowing that you're in, that your outgoings are going to increase? Because the sooner you take an insurance policy, the cheaper it is generally. Yes, you might pay a bit more in the short term for the extra cover, but income protection and any term assurance policy gets more expensive as you get older. So the sooner you get it in place when you're fit, young, fit and healthy as possible, it's generally a good long-term strategy.

Dr James, 19m 26s:

Wow, never thought about it in that level of detail, because your taxable income effectively well, you know, technically doesn't include your pension contributions, right? And the taxable income is what everybody operates off when it comes to their policy.

Warren, 19m 41s:

Yeah, yeah, so if you're working through the limited company um, you know, having the option to use a policy that you pay through the limited company to cover your pension provision is is a pretty interesting thing to consider, because you get the tax deduction on the premium but because you're not taking it out of the business, it goes straight into your pension. You're not exposing the tax on on the benefit which you, because you're not taking it out of the business, it goes straight into your pension. You're not exposing the tax on the benefit which you would normally if you pay yourself through an executive income protection policy which negates some of the benefit of the tax deductibility of the premium. So, yeah, there's personal we're mostly talking about the personal protection policies where there's no tax deduction on the premium but there's no tax to be paid on the um on the benefit.

Dr James, 20m 32s:

So, but executive income- protection in the right place can be, can be useful too. Wow, okay, cool food for thought, awesome. So how many is that we've got? We've got four. Now we're losing time, aren't we.

Warren, 20m 41s:

But you know what we don't have to stick this.

Dr James, 20m 42s:

We don't have to hit this for six per se. Uh, maybe you didn't mean six in the literal sense.

Warren, 20m 46s:

One of the most important things is probably the single most important thing, which is um, it's not so much a setup, it's making sure you pick the right policy is the one thing that I think comes before absolutely everything is getting an own occupation cover policy. Um, now, within your protection policy, it comes in different varieties so you can have an occupation, you can have suited occupation, you can have any occupation and as even simple tasks and work tasks in your protection policy, you have to be incapable of doing certain work tasks like answering a phone, writing a letter, various things which are very, very basic. And the only policy that you should ever consider as I believe anybody, but particularly a dentist is have a policy that's own occupation and that is a policy that if you cannot do your normal regular work duties, you qualify for a payout. Any occupation sounds like it covers you for any occupation. You think that's potentially a better policy, but you have to be. It's the opposite. You have to be physically incapable of doing any occupation to get paid out in that sort of policy, and that's the most important thing. So, as long as you're comparing policies where they pay out if you can't work as a dentist, then the policies are very similar. And the argument about whether one insurer is better than the other is becomes a little bit moot. Because as long as its own occupation cover, then if you can't do your normal regular work duties and you've had the policy answered correctly when you've done the application questions, you have a valid claim.

Dr James, 22m 25s:

Simple as that there we are and you know what we could actually at this point. It's interesting in this point in the conversation because something just popped into my head when you were talking just then and it depends where we want to take this because this actually might be more interesting for the audience what popped in my head while you were talking Just then. In your experience through having these conversations with dentists, you must have noticed that there must be almost like a checklist of the most frequent things there that they're either done wrong in their policy or they could be further optimized, depending on which perspective you're operating out of. You know, maybe it's not quite to the stage wrong per se, but they just could be improved upon quite significantly. What would you say those most frequent things are that you come across that are maybe not set up in the most optimal fashion it.

Warren, 23m 24s:

I would say sort of probably the biggest mistake people have is not understanding the cost structure. We talked about this before. The documentation you get from insurers will tell you a total cost figure for the policy and then if you look at the fine print, it says that's based on the premium never changing, but the premium is going to go up every single year. In fact, that is one of the. The dirty dirty half dozen is having annual cover increases, which I didn't mention. So you know it's. Unless you're going for policy that's like two, three, four years long, um, you've got to have annual cover increases to protect the value of your payment. It gets cost of living increases because 10 years of average premium increases you're going to lose, um, about a third of your buying power. So and then if you're talking 30 years, you know you've got to have indexation or annual cover increases to protect against um cost of living. And people don't understand the impact of that and I sort of bang on about this on a regular basis. Um, depending on the method the insurers use, you could get a policy that costs you twenty thousand pounds with a starting premium of fifty quid, or it could cost you seventy thousand pounds with a starting premium of fifty quid. So, and for the same cover with the same cover increases. So for me it's people don't understand the cost structure of income protection. And is there one common mistake, I would say it's not so much the details of the policy, it's that people. The most common mistake people make is they don't actually think about in detail what would happen. They just we all have this massive optimism bias. We think good things will happen to us. So if we buy a lottery ticket, we dream about what we're going to spend the money on and which friends we're going to make rich, um, and that's like 46 and a half million to one against winning the lotto jackpot, um, whereas we don't think bad things will happen to us. So we never worry about stuff like that generally, even though we maybe think we do worry about stuff. But the odds on being struck by lightning in in the next 12 months if you live in the uk, is something like three million to one, so massively more likely than winning the lottery jackpot. The odds on a plane landing on your house in your lifetime 250 000 to one, which which is bonkers, and we never think of things like that. You never see people looking out their windows, watching for aircraft crashing towards them, but they still dream about spending a lotto win. So because we have that optimism bias built in, we very rarely sit down and think okay, what is actually going to happen if I can't work, so what are the financial impacts? And then think it through. And that's essentially what I do with my clients. I sit down and sort of just go through systematically what would happen? Okay, what's the impact? So this is going to last for so long. And insurance for me is about worst case scenario. So I don't believe in having any more insurance you need because you don't. You know you're wasting your money, but I think you should always plan for the worst case. So what happens if, in six months'. Time, something happens to me? I can never work as a dentist again? Will the cover that's in place mean that I can maintain my lifestyle? And if the answer to that is yes my lifestyle is fine, not just in my working life but through my retirement then you've got enough cover. If you haven't't, then maybe you need to consider your cover. And and the question I will say to people is if you get the cover set up correctly, you will guarantee your lifestyle, whatever happens to you health-wise accidents, illness and if the cost of that policy doesn't impact your lifestyle but it guarantees your lifestyle, why wouldn't you take any protection policy?

Dr James, 27m 13s:

in a nutshell, what a lovely thought to end things on, or certainly a very nice summary thought to end things on. Should we say that? Uh, yeah, a very nice surmise of everything that we were talking about just a second ago. Warren, thanks so much for your time, your wisdom, your knowledge, everything on the Dentists Who Invest podcast today. If anybody listening wants to reach out to yourself, how are they best off doing that?

Warren, 27m 36s:

Well, they can obviously make an inquiry through the DWI website, or MediDent FS is available on the internet, so feel free to sort of jump on the website and it's possible to book an appointment in my diary direct through the website. Um, nice and easy. I'm available from 9 am to 10 pm weekdays, so I'm happy to work outside of normal practice hours, um, because a lot of my clients tend to be busy during the day looking into people's mouths. So, um, being available in the evenings is is sort of generally sort of quite well appreciated.

Dr James, 28m 9s:

Awesome stuff. Yeah, I'm happy to do that.

Warren, 28m 13s:

So it's never, never a chore.

Dr James, 28m 15s:

Lovely, lovely and also worth mentioning. Warren is, of course, in the Dentists Who Invest Facebook group. Warren Robins in the group members. Feel free to search Robins in there if you want to get in touch. Feel free to search Warren in there if you want to get in touch. Call you Robins, your last name, Anyway, Warren. Thank you so much for your time once again, and I'm sure we'll be back on the airwaves very, very, very soon. See you in a bit.

Warren, 28m 35s:

Pleasure, as always, James. Thank you.