FOOL'S EYE VIEW

Policies That Really Pay Off

By Cliff D'Arcy
August 5, 2004

Having spent most of my career working in insurance, I'm not convinced that all money spent on protection products is 'dead' money. (However, I know that some insurance policies are a waste of money: my pet hate is payment protection insurance, which I know to be one of the worst-value products around.)

Obviously, if you never make a claim on an insurance policy (or it pays out less than you've paid in), then you've had no real benefit, other than 'peace of mind'. But there are a few protection products that repeatedly pay back more than you've paid in. Healthcare cash plans (HCPs) - also known as hospital cash or hospital savings plans - are the best example.

The benefits

Healthcare cash plans are designed to help policyholders meet the cost of everyday healthcare expenses, but are not to be confused with more expensive and comprehensive private medical insurance (PMI). Here's a list of the health-related expenses that a typical cash plan covers:

• A daily cash benefits for each night spent in hospital (including parents staying with ill children) and day-case treatment
• Alternative and complementary treatment, such as acupuncture and homeopathy
• Annual health screening (this has become increasingly popular in recent years)
• Chiropody treatment (to keep your feet sweet!)
• Critical illness, death and funeral benefits
• Dental check-ups and treatment
• Fees for initial consultations with NHS-recognised specialists
• Maternity or paternity benefits (a cash bonus when you have a baby!)
• NHS prescription costs
• Personal accident benefits
• Physiotherapy, osteopathy and chiropractic treatment
• Sight tests and prescriptions for glasses or contact lenses
• Other treatment, including dietary advice, hearing or surgical aids, home help and nursing, occupational therapy and recuperation and rehabilitation grants.

In addition, many operators also provide helplines that provide free medical, legal and counselling advice.

Why it's worth having a cash plan

If you spend over, say, £50 a year on trips to the dentist or optician, you should be able to claim back more than you shell out in premiums. Choose an HCP policy that best suits your personal needs and you should be up on the deal year after year! In fact, in his superb bestseller, The Money Diet, money-saving expert Martin Lewis reckons that wily planholders can claim back up to seven times the cost of a policy every year, which means up to £350 in your pocket every year, tax free!

Monthly premiums for cash plans range from £4 to £30, although the average is around £12 to £15. Many employers now offer HCPs as a low-cost alternative to private medical insurance, so check with your company when you start to shop around for cover.

These days, over six million people are covered by HCPs. These policyholders paid out roughly £410m in premiums in 2002 and received over £300m in benefits, which is a pretty decent return when compared to other protection plans! And, when you learn that we spent £2½ billion on dental and optical services in 2001/02 alone, you can see the need for this cover!

HCP sales have boomed in recent years, because customers appreciate their simplicity and are keen to buy a product that helps meet expenses that they already have to pay. The best-known HCP provider is market leader HSA, which controls over two-fifths of this market. HSA reckons that its customers make an average of 2½ claims per year.

Most HCPs are sold by 'not for profit' organisations, some of which are mutuals (owned by their members), although several big insurers have jumped onto this bandwagon. Several of the older 'provident' societies have become fairly asset-rich, which means that they can be generous with their customers and make substantial donations to charity. Indeed, many of these companies are older than the NHS itself - the first hospital savings plan was started in 1858!

The restrictions

It's important to understand that HCPs only help with the cost of treatment, not its provision, so you still have to seek out the treatment yourself. Furthermore, they do not cover all your expenses, only a proportion, and each benefit has an annual limit. Different plans refund different amounts, usually between 50% and 100% of the bill, up to a pre-set limit. So, if your healthcare bills are fairly modest, look for a low-cost policy with low benefit limits but 100% payouts.

Normally, you have a choice of benefit levels and monthly premiums, and can opt for a single or joint policy. Many providers cover children up to eighteen at no extra cost (but remember that most treatment for children is free on the NHS).

However, almost all policies have a waiting period of three to six months before you can begin to claim benefits, which rises to ten or twelve months for maternity and paternity claims, for an obvious reason! Also, some plans will not cover expenses relating to any pre-existing medical condition (one which you had before taking out the policy). Others will exclude any conditions in existence in the two years prior to the start of your policy.

On the other hand, you don't need a medical examination to buy a cash plan and, unlike PMI, the premiums you pay aren't based on your age or gender, although some providers have upper age limits for new joiners. This means that cash plans can be particularly valuable for older planholders, although even young, fit people should benefit from having a policy.

The providers

These companies all offer HCPs, but I've only included links to websites of companies that give you the biggest bang for your buck (high benefit levels and low premiums):

ASDA, AXA PPP, BCWA Healthcare, Birmingham Hospital Saturday Fund, Bolton and District Hospital Saturday, Boots, BUPA, Cash4Health, CS Healthcare (for civil servants and their families), Forester Health, Groupama Insurances, Halifax, HCS, Health Shield, HealthSure, Hospital Saturday Fund, HSA, Insure-For-Less, Insurity, Leeds Hospital Fund, Legal & General, Lloyds TSB, MedEx, Medicash/Scot Healthcare, Norwich Union Healthcare, Patients' Aid Association/Paycare, Pinnacle Insurance, Premier Health/WDHCS, Saga, Sovereign Health Care, Standard Life Healthcare, Western Provident Association, Westfield Health Scheme and WHA Healthcare.

(Note that many of the not-for-profit companies selling HCPs are members of trade body the British Health Care Association, which is almost a sign that you're dealing with a decent company.)

In summary, whether you're young or old, can afford private medical insurance or can't, and are rich or poor, you should consider buying a healthcare cash plan. Just don't forget to send in your expenses and claim forms promptly, otherwise you'll end up out of pocket!

More: Visit our Insurance centre.