Life insurance for doctors

In this article, we take a look at life insurance for doctors, paying particular attention to the benefits included within the national health service and other pension schemes. We also explain the other life insurance options* for doctors who need more life insurance or those who may be reaching their pension lifetime allowance limits.

How does life insurance for doctors work?

Life insurance that is provided through the National Health Service (NHS) or any other employment contract for doctors can be a useful benefit to receive, as it is usually provided alongside your pension benefits. However, most doctors want more life insurance than is provided by the NHS, especially if their death would cause substantial financial hardship for the people they leave behind. This can be particularly true for young doctors with families.

The life insurance available to doctors through the NHS varies depending on their role and their specific pensionable scheme membership. The table below shows the benefits based on each scheme and is split between secondary care doctors and general practitioners.

How much life insurance does the NHS pay doctors?

Doctors - as well as most other NHS staff - would receive a lump-sum death benefit, usually payable to a spouse, civil partner or a nominated qualifying partner. Qualifying criteria include evidence of joint financial responsibilities and an exclusive cohabiting relationship that would be much like a marriage. This person can also receive a portion of any pension income due through the scheme if a member dies. Dependents or children can also receive a benefit depending on their age and dependency.

Here we have summarised and simplified the benefits based on the pensionable scheme membership for general practitioners and secondary care doctors. You may want to refer to the official guides via the NHBSBSA website to read the details for your specific benefits. Members with less than 2 years of service may not qualify for the full benefits and part-time doctors will usually receive pro-rata benefits.

NHS death benefit payable for secondary care doctors and general practitioners

	1995 scheme	2008 scheme	2015 scheme
Secondary care doctor	Twice the actual annual pensionable income	Twice the actual reckonable* pensionable income	Twice the relevant earnings in the last 12 months or one of the last 10 years if higher
General Practitioner	Twice your average uprated earnings	Twice your average uprated earnings	Twice the relevant earnings in the last 12 months or one of the last 10 years if higher
Dependent pension	50% of your own pension	37.5% of your own pension	33.75% of your notional pension
Children's benefit**	25% of the 1/80th benefits payable	18.75% of the 1/60th benefits payable	16.875% of the 1/54th benefits payable

*Reckonable pay is the average of the best three consecutive years pensionable pay in the last ten years

**Eligible children are covered until age 23 or for life if they are unable to live independently

Source: www.bma.org.uk

Any death benefit from the NHS must be paid within 2 years of the death being registered to avoid a 45% tax applied by HMRC to all benefits not paid within this time. A claim form should be completed and submitted as soon as possible to avoid this.

The schemes and benefits available to the health and social care sector are not the simplest to understand. Depending on when you joined the scheme and whether you're continuing to contribute to the scheme will determine the amount of death benefit that will be paid out.

What does life insurance for doctors cover?

Life insurance for doctors covers death by any cause. There are seldom any exclusions applied to a life insurance policy but you'll usually find that suicide and any death caused by self-harm is not covered within the first 12 months of starting a life insurance policy. The life insurance will also, usually include a terminal illness benefit which pays the death benefit early if a medical consultant deems that you have less than 12 months to live.

How much does life insurance for doctors cost?

The cost of your life insurance will initially be quoted based on your age and whether you have smoked in the last 12 months. Higher amounts of life insurance and policies taken over a larger number of years will cost more. Once you have your initial price for the insurance, you will complete an application and answer questions about your health, occupation, hobbies and lifestyle.

Applications are assessed by underwriters at the life insurance company who decide whether any additional risks need to factor into the price that you've been quoted. Doctors don't usually have to pay more as the risks associated with their occupations are not normally life-threatening. However, occasional work abroad in areas of conflict or areas where there is a high risk of contracting serious illnesses can affect a doctor's life insurance application.

Cost of life insurance for a doctor (non-smoker)

	Monthly premium for £250,000 level term life insurance over 20 years	Monthly premium for £250,000 level term life insurance with £50,000 critical illness insurance over 20 years
25 year old	£5.21	£13.02
35 year old	£10.02	£25.31
45 year old	£19.89	£52.11
55 year old	£54.85	£102.85

All premiums are correct as of 4th September 2024, assuming that the insured person has no adverse health or lifestyle risks.

Cost of life insurance for a doctor (smoker)

	Monthly premium for £250,000 level term life insurance over 20 years	Monthly premium for £250,000 level term life insurance with £50,000 critical illness insurance over 20 years
25 year old	£9.61	£17.52
35 year old	£21.56	£39.56
45 year old	£50.32	£95.62
55 year old	£142.16	£212.32

All premiums are correct as of 4th September 2024, assuming that the insured person has no adverse health or lifestyle risks.

Who gets your doctor's death in service benefit?

If you wish for your benefits to be paid to someone who is not your partner or child, you should use a nomination form to do so. Otherwise, most death in service benefits are paid to your spouse, civil partner and children's benefits are paid to eligible children.

Is employer-paid life insurance taxable?

Your death in service benefits may become liable for inheritance tax up to 40% if, when combined with the value of your whole estate, they exceed the inheritance tax threshold which is currently £325,000 for an individual (2024/25). Inheritance tax may not apply if the recipient of your benefits is your spouse. Like most tax rules, the rules are subject to review.

You can buy life insurance and put this in trust for your beneficiaries so that it remains outside your estate and therefore avoids inheritance tax. We discuss these options later in this article.

What is the current pension lifetime allowance?

Death benefits from your NHS pension scheme can add to the value of your pension lifetime allowance and combined with the value of your overall pension, any value beyond the threshold can be taxable up to 55%. If you took your pension before 6 April 2023 then the threshold for pension lifetime allowance is £1,073,100 and there is no lifetime charge for those taking their pension after 6 April 2023 although some taxation limits will apply to the tax-free lump sum you take from your pension and lump sums paid from your pension upon death.

You can find more information about pension lifetime allowance at www.gov.uk or use this link, "Tax on your private pension contributions".

Best life insurance for doctors

Doctors can choose between a few different types of life insurance depending on what they are trying to achieve. If you want life insurance to pay out in addition to the death benefits from your NHS pension scheme, you'll need to decide which types of life insurance to apply for.

Term life insurance is the most popular and it will insure you for a certain number of years making it the most cost-effective. If you'd prefer to buy life insurance that will pay out when you die, you'll need to look at whole of life insurance which covers your life until you die. Whole of life insurance is more expensive as it will eventually have to pay out. We've listed the different life insurance options for doctors below to explain how they work and where they are useful.

Level term assurance

This type of life insurance policy pays a lump sum of money if the insured person dies within the term of the policy. You choose the level of payout that you wish to insure and it becomes fixed for the duration of your policy so that regardless of when in the policy death occurs, the same amount is paid out.

Family income benefit

This type of life insurance policy pays a regular income. It can be described as a reducing type of life insurance because it pays the income from the point that the insured person dies until the policy ends. This means that if death happens in the earlier years, there are more years of income to be paid than if death happened later in the life of the policy. This type of policy is ideal for families with young children because as they get closer to the age of independence there is less need for the income to support them. It is also cost-effective due to the high level of cover available at the outset.

Decreasing term assurance

This is a type of life insurance policy that pays a lump sum of money if the insured person dies within the term. The value of what is paid out reduces over the years to mimic how the value of a repayment mortgage reduces and it is used to cover this particular need only.

Whole of life insurance

A whole of life insurance policy will pay a lump sum when the insured person dies, whenever that happens. These types of policies do cost more than term life insurance policies because they have to eventually pay out. Unlike term life insurance, the monthly premiums can be on a guaranteed or reviewable basis. Guaranteed premiums are fixed and once you start your whole of life insurance policy, the price will not change. This can be helpful in terms of affordability, budgeting and forecasting. Reviewable premiums are not fixed and the life insurance company uses claims experience as well as other measures to periodically work out if the price you are paying should be increased or reduced. Increases to reviewable premiums can be unpredictable and don't usually offset the initial advantage of a cheaper premium.

Extra benefits to consider including with your life insurance

• Waiver of premium - covers the cost of your life insurance if you are unable to work for more than 3 or 6 months and your income stops.
• Indexation - increases the value of your insurance each year in line with inflation or by a flat rate of 2-10% to protect its buying power. It won't necessarily cost you more at the outset but your monthly premiums will increase each year alongside the sum assured.
• Income protection - usually a separate contract but is one that many doctors will consider to enhance the ill-health benefits offered through their employer. You can read more about this benefit in our article "Best income protection insurance for doctors".

Critical illness insurance for doctors

Most doctors will need little help to understand that the risk of serious ill health during your working life is much greater than that of death. This is why critical illness insurance is a very important benefit to consider.

Critical illness insurance for doctors will pay a lump sum or an income in the event that you are diagnosed with one of a number of serious illnesses. The illnesses that are covered include heart attack, stroke and many cancers but the list varies depending on which life insurance company you apply through. Some will provide wider-ranging cover than others so it is important to shop around and find the best products as well as prices.

Critical illness insurance can be incorporated with life insurance (and often is) but it can also be bought separately as a standalone product.

Best life insurance companies for doctors?

Life insurance companies vary somewhat when it comes to life insurance products and even more for critical illness insurance policies. The application process can be easier and provide better outcomes with certain life insurance companies too. Applications for life insurance are assessed based on your health, occupation, hobbies, travel and general lifestyle. Doctors can find that travel or other risks to do with their occupation factor into this process so choosing the best life insurance company can be very important.

The process of assessing a life insurance application is called underwriting and the guidelines used by different life insurance companies can make them more or less favourable depending on their specific guidelines around exposure to risks. The guidelines do change from time to time and particular events can cause extra restrictions on jobs in the medical sector.

To avoid wasting time applying to life insurance companies that will increase your premiums after assessing you, you should seek expert assistance. At Money to the Masses, we have reviewed and personally vetted a specialist life insurance company* and recommend this as the best way to find the life insurance company with the best price and product for you.

Unlike, comparison sites, they are well-versed in how an insurance company will assess you and can be selective on your behalf. To arrange a callback with a life insurance adviser complete this form* and one will be in touch to discuss your needs. If you buy your life insurance this way, as a Money to the Masses reader you will also receive up to £100 cashback.

 

If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. This link can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article