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No one likes to talk about dying. But the nature of our profession means that we are quite often faced with the task of telling families that their loved one's may pass soon. As a doctor it can have us thinking about our own future, the future of our dependents thus our life insurance in the UK.
This may all come off as morbid, but it is something that should be planned as soon as you start settling down into your first job in the UK. There are many different ways to save money away for tomorrow. But the one thing we've noticed a lot of people wondering about has been life insurance, so we will tackle that query first.
Do I need life insurance?
We're going to try and look at different situations as obviously not everyone has the same circumstance. It's up to you to weigh the scenarios put before you and see what you think you may or may not need. What we want to highlight first is the concern about what will happen to whatever savings/assets you have in case you don't have a will. As this is based on the law of the land, check out the UK government ruling on intestacy.
If you're single with no dependents and have no debts/mortgages, you really don't need life insurance. The purpose of life insurance is to help those you leave behind with costs that they may not be able to afford, so if you're otherwise unencumbered, you don't need to worry about life insurance in the UK being a doctor.
That being said, if you have a depedent or dependents, any outstanding debts, mortgages, etc, you may want to consider taking out some sort of an insurance cover. Life insurance is still not mandatory in this case if you save money in other ways, which we'll discuss a little further down. Now let's talk about the types of life insurance.
What are the types of life insurance?
There are probably more varieties of insurance than we have necessarily covered, but we're looking to talk about ones we think are more pertinent to what you all may need. The two basic types can be divided into term life insurance and whole life insurance.
Term Life Insurance
Term life insurance covers a particular period of time. During this period of time, there is coverage and a payout if the individual covered were to die. You can set this duration (term) for what ever fits best for your situation. Typically this type of insurance is ideal for younger individuals, and the costs per month (premium) is not as much as it is for whole life insurance.
When the term is done, if it has not been paid out, no money is returned. If it is paid out, it will be paid out in a lump sum. There are three types of term life insurance:
Decreasing term life insurance means that over the defined time period, the money that would be paid out would be less as the end of the term approached. For example, if you decided to take out a decreasing term life insurance policy for yourself for a sum of £20,000 over 10 years, and you were to pass after 5 years, your family would look to get about £10,000.
Increasing term life insurance means that over the defined time period, the money that would be paid out would be more as the end of the term approached. This increase would be at a rate you set or as per the retail price index measure of inflation. For example, if you decided to take out an increasing term life insurance policy for yourself for the sum of £20,000 with an increase of 5% each year over 10 years, and you were to pass after 5 years, your family would look to get about £25,000.
Level term life insurance means that over the defined time period, the money that would be paid out would be exactly the same as the set amount established when the claim was established. For example, if you decided to take out a level term life insurance policy for yourself for a sum of £20,000 over 10 years, it would not matter if you were to pass during the first or last year of the term (or any time in between), because your family would look to get about £20,000 regardless.
Whole Life Insurance
Whole life insurance is paid out when you pass (whenever that will be), and seeing how it is an eventuality for all of us, this type of insurance tends to have higher premiums (fees). Keep in mind that whatever premium you set should be something that you can pay for while you work and when you retire. If you cannnot keep up with the associated monthly fees, your coverage will be cancelled. Whole life insurance is essentially classified into two types:
Balance whole life insurance means that your premium stays exactly the same for the rest of your life, even if you suddenly fall ill or overall your health begins to deteriorate. It also comes with a fixed payout for when you pass. How much you choose to insure and what your situation is at the time you set it up will reflect how much you pay as a premium.
Maximum whole life insurance has your premium put into an investment fund, which means your premium is being put away to potentially cover payout costs. There is a chance your premium may increase or payout to your family on your passing may decrease dependent on how the investment does.
Term versus Whole Life Insurance
|Term Life Insurance||Whole Life Insurance|
|It provides protection for a certain amount of time||It provides protection for an individual's entire life|
|It has comparatively lower premiums||It has comparatively higher premiums|
|Typically has no cash value when alive||May have cash value|
|No payout if insured doesn't pass away during the term||Payout whenever there is death of the insured.|
|Ideal for younger, at high risk individuals||Ideal for middle-aged individuals with many financial commitments|
Options outside of Life Insurance for Doctors in the UK
Just because you decide to not opt for life insurance in the UK while working as a doctor doesn't mean that you cannot ensure that your family is well taken care of in case of your untimely demise. There are other ways to ensure financial solvency and keep your loved ones provided for.
NHS Pension Scheme
For instance, if you are apart of the NHS pension, there is a lump sum that is payable on death in service as well as pension benefits to your dependents. The payouts vary depending on how long you've been contributing to the pension. For more information regarding pension payout, we'd suggest checking out this NHS pension scheme post.
Now let's get back to the topic of financial solvency. As mentioned before, there are other ways to ensure your family stays comfortable, some of which we've mentioned here:
- Keep an emergency fund to cover at least 2 months of bills, etc
- Avoid debt/large loans
- Budget well
- Live within your means
- Save as much as possible
- Focus on what you can own vs rent/lease
Building an Emergency Fund
The best ways to keep an emergency fund is to set up your bank account so that every month a certain amount is put away. It doesn't have to be a lot, but it should be enough in a long term setting to cover important things in case of any catastrophic event.
Avoiding Large Debts or Loans
It's very vital to look forward and be mindful of costs that can stack up if an income falters. Debts and loans are things that can really make life difficult if you cannot keep up with payments, so as much as possible, if you incur a large debt or take out large loans, make sure you have the provision to cover costs in the long run. A doctor in the UK can think about having whole life insurance to cover their mortgage on the house in case of their untimely demise. But it is simple enough if you take a mortgage within your means which you can pay as early as possible in the first place.
Stick to a Budget
While you or your spouse are able to supplement your income, you should take care to budget as best as possible in order to keep some money away in the rainy day emergency fund we've already discussed. There is no reason for someone to not be able to save a good chunk of their salary each month if they follow the budgeting tips we've given in our article.
Grow a healthy habit of saving money
Living within your means may seem like a very obvious thing to say, but you'd be surprise how much small costs can add up over a monthly basis. Not to mention the thrill of buying something new or just on the market because others are doing it- these are things that can spell danger for your bank account.
Owning vs Leasing/Renting
Be smart about your money. We will wax poetic about saving, saving, and saving, and the reason for that is you've got to work quite a bit for money but it can leave you in a split second. Along with an emergency fund, it's also a good idea to keep a separate savings account as back up. Ideally, your main day-to-day costs should come out of a checking account.
If you've been in the UK for some time, or if you're relatively new, the fact remains that whatever you have only stays yours if you own it or you can keep paying for it. Try not to have too many things on rent or lease for that reason, especially if there would be a chance that whatever you are renting or leasing becomes a burden for your family if you pass.
What about keeping a will?
It's up to you. As we've mentioned before, the UK government has straightforward rules regarding intestacy or who inherits if you were to pass without a will, so you can make your decision based on what the law declares. If you need any help with making a will or are unsure of where to start, BMA has a service that they offer to their members.
At the end of the day, whatever the situation and whatever you choose to do, just remember to research your options well before making any sort of decision.