Navigating rising insurance costs for medical professionals

Navigating the rising costs of personal insurance for medical professionals

The 'self-insurance' approach

A new financial year is a great chance to review your expenses and reflect on your personal insurance costs. While some insurance premiums can be tax-deductable, this is still an expense that you should look at closely. With the cost of personal insurance protections rising, it’s important to identify whether these remain appropriate for your ever-changing needs and circumstances as you grow in your career.

The cost of personal insurance (such as Life, Total and Permanent Disability, Income Protection and Trauma cover) often rise based on your age. For many surgeons and medical professionals, this cost can become unreasonably high in the second half of their careers, when their likelihood to make a claim on a high salary increases the costs. These rising premiums if left unchecked will not only impact cashflow now but can affect the ability to build wealth for retirement.

By creating your own self-funded contingency plan, you can set yourself up to let go of costly policy payments while remaining covered for uncertainty.

Create self-sufficiency to safeguard your future

The key to a good risk protection strategy at any stage of your career is to have a longer-term plan in place for self-insurance. This may seem like a long way off for most, however, with a little forward planning it is very achievable. The key is to take small regular steps, which will lead you to be able to confidently say ‘I have the financial means to support myself if something bad happens’. Some good steps to start with include:

1: Understand your current expenses and financial position more broadly

Many people take out insurance cover when their need for protection is at its height (when they have a large mortgage, young children, etc), and then loyally pay the rising costs for years on end without reviewing their cover in light of changing circumstances. Staying on top of what cover you need, and what can be reduced, can help keep costs in check and save you thousands in the long-term.

2: Review and compare your insurance needs and consider alternatives

Changing insurance providers is rarely a straightforward process. It requires medical underwriting and should not be done without careful consideration. However, it is important to ensure that you are getting a product that fits your needs. Quite often a review of policy benefits can uncover options for cost savings.

The recent price increases for income protection insurance have made these policies less cost-effective for some policyholders. As a result, many individuals are reevaluating their existing policies. Some are exploring options like ‘agreed value’ income protection, which locks in the payout amount at the policy’s inception, rather than the alternative of having to justify your insured amount at the time of claim, using evidence of income. However, the escalating premiums for ‘agreed value’ policies are leading many, particularly those with stable secure incomes, to consider more affordable alternatives.

3: Reduce reliance on insurance before significant age-related cost increases

Building a form of emergency funding into your financial position, whether by way of a cash reserve or a redraw facility, can assist you in reducing reliance on insurance and therefore the price you need to pay. This allows you to ‘self-insure’ using your own funds for a short time. By having these emergency funds on-hand, you can reduce your reliance on costly Trauma insurance, or alter the terms of your income protection policy.

One popular strategy to reduce costs as your emergency fund grows is to extend the ‘waiting period’ on your policy (i.e. how long you need to be off work until you are paid a claim). The longer this period, the less risk to the insurer and, hence, the lower the premium. A willingness to use your own financial resources to cover your expenses, for a period of time, can have a significant impact on the cost of your premiums.

Ultimately, when improving your financial position and creating self-sufficiency, it is important to stay focussed on the long-term. Nothing helps reduce your reliance on insurance like building your personal wealth, so paying off your mortgage sooner or growing investment assets such as superannuation will also help you become self-insured before age-based cost increases make it unaffordable.

What are the next steps?

It’s important to have a long-term strategy in order to secure your financial future. Speak with a BDO Private Wealth adviser today to create a personalised plan that fits your life and goals. Whether you’re looking to safeguard your income or prepare for the unexpected, expert advice can make all the difference. Contact us today for a no-obligation chat to learn how we can support you.

Disclaimer

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact the BDO member firms in Australia to discuss these matters in the context of your particular circumstances. BDO Australia Ltd and each BDO member firm in Australia, their partners and/or directors, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

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