$6 Million Man - Where Do You Get Your Advice?
There was a TV show in the mid 70's called the $6 Million Man. An astronaut who survived a crash was rebuilt using bionic parts - an eye, an arm and both legs. This gave him an enhanced speed, strength and vision.
"Interesting" I hear you say "but what is your point?" Well, it made me realize I'm a lot older than I realise and 40 years ago $6 million dollars was deemed such a huge amount of money that it could provide super human outcomes.
It struck me 40 years on that every graduate from Dental School is now a $6 Million Man or Woman given that they have a potential 40 year career in front of them. Given the average Dentist now earns over $150,000 per annum the career earnings will far exceed $6 million.
The problem for the graduate (and for all of us actually) is they don't know what they don't know. This produces two major problems in the relation to insurance
- They have an inverse relationship with risk
- They don't know how to determine what is good advice.
These problems are not the exclusive domain of graduates but lessons learned early in life should stand us in good stead later.
So, in respect of the first problem it is really the recognition of priorities and value. Western Society is very materialistic. We like the trappings and comfort of homes and cars and all the gadgets that make life fun. Every year we are inundated with new graduates who have moved to a new city, set up home/flat and want to insure their meager possessions and car. They can identify with the possible loss of these and want to pass on that risk. For a premium an insurer will give them that peace of mind. These are quite often nominal policies - the car is less than $10,000 and contents not much more. Invariably they are dollar conscious and being in their first real job they are also learning the art of budgeting.
In conversation I always ask what have you done in respect of your income and often the response is - "that's expensive" or "I'll wait until I get settled and established in my job." So, while their car is fully insured, $6 million of future earnings is walking around uncovered.
In our view Disability Income Protection cover is the most important personal insurance to have. If you only have one policy, this should be it. Because provided you can work or your income is insured you will have money to pay for any loss that might have been covered by any other form of insurance. That's not to say you should cancel any other insurance policy if you have Disability Income Protection It's simply a case of setting priorities.
What we are also seeing is a move to reduce Income Protection premiums by either under insuring or taking longer Wait Periods (the time between ceasing work and the benefit commencing).
The under insuring or reduction in benefit is also prevalent with older practitioners. The argument goes that we are financially self sufficient now so if I had to stop working it wouldn't matter. I often ask these folk if they have decided to only insure half their home or only one of their cars. Clearly they haven't and wouldn't dream of doing so. Yet most houses can be rebuilt for less than $500,000 and cars replaced for well under $100,000. We often see folk reducing the potential payout from their income protection by substantially more than these amounts.
Our position is you should insure the maximum amount of your income possible and from as early as possible and for as long as possible. You will never get to 100% but the closer the better. This is your asset (future income) that provides all other assets including lifestyle for you and your family.
All other insurances are ultimately expendable. I'd rather have an income and no house than a house and no income - yet I don't know anyone who doesn't have their house fully insured but I know plenty of people who haven't insured the maximum amount of their income.
The second problem is recognizing good advice. I touched on this a couple of articles back in reference to banks and online solutions. Well, it extends further and we are seeing situations where dentists are subject to advances from all forms of financial advisors. Quite often there is some form of personal relationship - family, friend or indeed patient. The unspoken pressure of expectation sees people engaging advisors who may not be best suited to their requirements. As in any field there are a range of competencies including experience and knowledge.
We have recently seen a couple of cases where risk protection programmes have been driven by cost and foregoing quality of coverage. For example a dentist with a long term income protection policy payable to age 70 was advised that an income protection policy with only a 2 year benefit was adequate as long as a lump sum Total Permanent Disablement policy was established to clear debt. Some 40 years earnings cover was cancelled and replaced with a lump sum policy of less than $1 million. This dentist is now absent through mental health issues. They are receiving the income protection benefit but as yet do not qualify (and may never) for the lump sum. This could be an ongoing recurring claim with returning to work part time mixed with long periods of absence. The nominal premium saved through changing the structure of cover is looking quite expensive.
At the end of the day NZDIS have been in business for over 90 years serving the dental industry - we understand your business better than any other.