FOOL'S EYE VIEW
All About Private Medical Insurance

By James Carlisle
October 3, 2002

Critical illness insurance and income protection insurance are designed to cover the impact that illness might have on your finances. Private medical insurance (PMI), on the other hand, is designed to cover the cost of private medical treatment to make you better.

Do I need it?

No one in the UK should actually need private medical insurance, because we're lucky enough (or pay enough taxes) to have the National Health Service (NHS). The NHS is there to provide medical treatment in the UK to those who need it, regardless of their ability to pay. So, if you get sick, then there are NHS GPs who will tell you what's wrong and NHS hospitals that will try to put it right. What's more, the level of care should be as good in the NHS as anywhere elsewhere.

There are two main reasons why some people like to go for private medical care. The first is to do with the infamous waiting lists. To get certain non-critical treatments on the NHS, you may have to wait some time. Some people, quite understandably, prefer to pay for their treatment rather than wait to have it for free.

The other reason is that if you have to go into hospital, private treatment will generally provide you with a single room, with more in the way of TVs, videos and what have you. Some say the food is better, too. If you've got the money to pay for it (or to pay to have insurance for it), then a bit of mollycoddling when you're laid low is very welcome.

So PMI is undoubtedly a luxury, but it's a very nice one to have. As with any luxury, it's a matter of balancing up the cost against the perceived benefit. If you're on low earnings, then medical insurance would probably mean giving up too many other things. If you've got money coming out of your ears, then it'll probably make sense to go for it. If you're somewhere in the middle, like most people, then it's a very individual balance to strike, but then there's a wide range of policies designed to suit different people.

Different types of cover

Type of treatment

Medical insurance tends to categorise care into three different types: in-patient (where you have treatment or tests in hospital and stay overnight), day-patient (where you have treatment or tests in hospital but don't stay overnight) and out-patient (where you have treatment or tests that don't involve a stay in hospital either as a 'day-patient' or an 'in-patient'). Most types of private medical insurance will include cover for 'in-patient' and 'day-patient' care, but not necessarily for out-patient.

Common exclusions

In some cases, out-patient care will be broken down into further categories, which may or may not be included, such as tests and specialist consultations. Some policies may also include cover for treatment overseas, but this would be unnecessary if you get travel insurance that covers you for this.

Most medial insurance policies will exclude cover for any illnesses that you had when you took out the insurance ('pre-existing conditions'). Also typically excluded will be the costs of private GPs and accident and emergency treatment.

The most important exclusion to recognise, however, is treatment for long-term incurable (often known as 'chronic') conditions. Private medical insurance is all about making you better and it's almost always limited to the costs of curing short-term, curable illnesses and injuries.

Making the premiums cheaper

As well as restricting the scope of treatment that's covered, you can also reduce your PMI premiums by limiting yourself to lower grades of hospital accommodation. Instead of going for the deluxe package offering cable TV and menus created by Gordon Ramsey, you can settle for a little less. Another option is to agree to accept treatment on the NHS if it's available within a certain period of time.

As with other types of insurance, you can also reduce your premiums by agreeing to an 'excess' on your policy (whereby you pay the first few hundred pounds of any claim yourself) or to go for a policy with a 'no-claims discount' (rather like the 'no-claims bonus' on car insurance).

Annual renewals

Your PMI policy will cover you according to its terms and conditions so long as you pay the premiums. But the policy will need to be renewed periodically (generally annually) and the premiums are likely to increase at more than the rate of inflation. That's partly because the variety, sophistication and cost of medical treatments are increasing at more than the rate of inflation, but premiums will also tend to get more expensive as you get older.

Unless you opt for a 'no-claims discount' then the increase in premiums should only reflect the increase in cost to the insurance company of offering the insurance across a class of policyholder -- so it shouldn't be affected by the number of claims you happen to have made. Of course, if you think the premiums have risen by more than is acceptable, then you can move to a different insurance company.

More: The Fool's Insurance Centre