Income Protection for Doctors: Why Having Cover Is Only Half the Job

For most doctors, their ability to earn an income is their greatest financial asset. A medical career can generate millions of dollars of income over a lifetime, yet the insurance designed to protect that income is often put in place once and then largely forgotten.

The problem is that income protection is not a set and forget product.

Income changes. Specialties change. Doctors move between public and private practice, become contractors, establish businesses and take on different financial commitments. At the same time, insurance products, premiums and policy terms can also change.

Having income protection is important. Making sure it continues to do the job you expect it to do is just as important.

Income Protection Is More Nuanced Than It Looks

At its simplest, income protection is designed to provide a monthly benefit if illness or injury prevents you from working.

What sits behind that simple concept can be considerably more complicated.

Depending on the policy, there can be differences in:

• How disability is defined

• How pre-disability income is calculated

• Waiting and benefit periods

• Treatment of partial disability

• Superannuation contribution benefits

• Indexation

• Exclusions and medical loadings

• Policy ownership and tax treatment

  
  

For doctors, occupation definitions can be particularly important. The ability to perform the duties of a specific medical specialty can be very different from the ability to perform another form of work.

Small differences in policy wording can become very important when it comes time to claim.

Your Income Can Change Faster Than Your Insurance

A doctor's career can evolve significantly over a relatively short period.

A registrar may become a consultant. A salaried specialist may move into private practice. Someone working predominantly in the public system may begin earning substantial private income. Others may become practice owners or change the mix of clinical and non-clinical work they perform.

If the policy remains unchanged throughout that journey, the benefit may no longer reflect the income being protected. The opposite can also occur. Someone may be paying significant premiums for benefits or features that no longer suit their circumstances.

Regular reviews provide an opportunity to make sure the cover and cost remain appropriate.

Older Doesn't Necessarily Mean Better, and Newer Doesn't Necessarily Mean Cheaper

Income protection has changed significantly in Australia over the years, particularly following changes to product design introduced across the industry from 2021.

Some older policies contain features that are no longer available and can be extremely valuable. However, these policies can also become increasingly expensive as the insured gets older and premiums increase. This creates an important balancing act.

Replacing an older policy simply because a newer option is cheaper can mean giving up valuable benefits that can never be recovered. Equally, keeping an expensive legacy policy indefinitely without reviewing the alternatives can result in paying substantially more than necessary - especially if those legacy benefits are less important to you as an individual.

A proper review should compare the policy you already have against what is available today, looking at both the benefits being retained and the cost of doing so.

Health Changes Make Proactive Reviews Even More Important

One of the biggest mistakes with insurance is waiting until circumstances force a review.

Your health at the time of application has a major influence on the terms an insurer is prepared to offer. A medical condition that develops later may result in a loading, exclusion or an insurer being unwilling to offer replacement cover at all.

This is why cancelling an existing policy before replacement terms have been properly assessed can create significant problems.

A proactive adviser can review cover while there are still options available, rather than waiting until premiums become unaffordable or circumstances have changed to the point where alternatives are limited.

Cost Isn't the Only Factor

Premium is important, particularly as income protection costs can become significant over time, but price should never be considered in isolation.

A cheaper policy with less favourable definitions or benefits may represent poor value if it does not provide the protection expected at claim time. On the other hand, paying considerably more for benefits that are no longer relevant may also make little sense.

The objective should be to find the right balance between quality, affordability and the likelihood that the policy will perform as intended.

Why Doctors Benefit From Specialist Insurance Advice

Insurance advice is a specialist area, and doctors bring another layer of complexity.

A medical specialist may have multiple income sources, private billings, practice distributions and different clinical duties. Their ability to earn may also depend on fine motor skills, procedural capability or other specialty-specific functions that would be less relevant in many other occupations.

Understanding these nuances requires more than simply comparing premiums.

A specialist insurance adviser can consider the quality of the policy, occupation definitions, underwriting approach, income structure and how each insurer treats medical professionals.

Strong relationships with insurers and senior underwriters can also be valuable when negotiating terms, medical loadings or exclusions.

Insurance Deserves an Adviser's Full Attention

For many financial planning practices, the primary focus is investments, superannuation and retirement planning, with insurance reviewed periodically as an additional service. For doctors, we believe insurance deserves more attention than that.

There is little value in spending years building an investment portfolio if the strategy can be derailed by an extended period away from work without adequate income protection.

Insurance should sit alongside investment, superannuation, debt and cash flow planning as part of the overall strategy.

Importantly, it also needs someone taking responsibility for reviewing it proactively rather than waiting for the client to raise the issue.

What Should an Ongoing Review Consider?

A regular income protection review should consider questions such as:

• Has your income materially increased or decreased?

• Has the way you earn your income changed?

• Have you moved into private practice or practice ownership?

• Are your waiting and benefit periods still appropriate?

• Have premiums increased significantly?

• Have your health circumstances changed?

• Are there newer alternatives worth considering?

• Would changing policies mean giving up valuable existing benefits?

  
  

Sometimes the outcome of a review will be to change the cover. Other times, the best decision may be to retain exactly what you already have.

The important part is knowing your options and making an informed decision.

Key Takeaway

Income protection is one of the most important financial protections a doctor can hold, but simply having a policy is not enough.

The right policy needs to reflect your income, occupation, health and financial circumstances, and those factors can change considerably throughout a medical career.

For doctors, partnering with a financial planner who genuinely specialises in personal insurance means having someone proactively reviewing the policy, understanding the nuances of medical occupations and ensuring insurance remains an integral part of the broader financial strategy.

If your income protection hasn't been reviewed for several years or your career, income or circumstances have changed since it was established, speak with the BFD Financial Planning team about a specialist review of your existing cover.

BFD Financial Planning is a specialist firm dedicated exclusively to Medical Professionals. If you would like to discuss your financial goals for the year ahead and beyond, you can book a meeting at a time that suits you (including outside standard hours) via our online calendar.

Book a meeting. https://calendly.com/thomasrutter-bfdfp

Contact us today. info@bfdfp.com

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The information contained on this website and in this blog-post is general in nature and does not take into account your personal situation or circumstance. It is recommended that you consider and use the information provided responsibly, and where appropriate, seek professional advice from a financial adviser.

Although, every effort has been made to verify the accuracy and correctness of information, BFD Financial Planning, together with our consultants, officers, agents, and employees, disclaim all liability for any loss or damage suffered by any persons directly or indirectly relying on this information.