Healthier options

By DAILY MAIL REPORTER
Updated: 19:00 EST, 8 August 2002

THOUSANDS of people are paying for medical insurance they will never claim on.

With the cost of private treatment increasing by 5-6% a year, more people are turning to policies with high excesses to keep costs down. These policies make you pay as much as the first £5,000 of any claim - the excess - in return for lower monthly premiums.

But across the industry the average medical insurance claim is less than £1,000. This means most people with a high excess are paying their premiums for nothing, as they have to foot all the bill anyway. They would be better off saving the money in a high-interest account and paying for their own treatment.

Penny O'Nions, managing director of independent financial adviser The Onion Group, says: 'The average hospital visit is unlikely to cost more than £2,000, so if you choose a high excess then you are effectively self-insuring. Also, you need to bear in mind that if your claim goes over two policy years you may well have to pay the excess twice.'

High excess policies have proliferated over the past few years as a way of keeping premiums affordable.

Customers pay a large proportion of any claim - usually ranging from £1,000 to £5,000 - in return for lower premiums. But the danger is that some people may never make a claim because the treatment they need falls short of the excess level each year.

Hazel Gregory, managing director of Medical Insurance Services, says these policies are only useful for people who want to self-pay but only up to a fixed amount. 'It is important they understand what they are buying. But for people who have retired early or who can afford to ring fence cash to pay for treatment then they can be a good idea,' she says.

Taking out a higher excess will reduce the premiums. For example, Bupa Heartbeat gives a range of excess options. A couple aged 45 and 40 with two children, 11 and nine, would pay £111 a month if they opted for a £100 excess and £50 a month for a £2,000 one. However, since the excess applies to each family member, the £732 saved in premiums over a year could be lost in the potential £7,600 of extra excess that must be paid before claims will be met.

PPP's Healthy Outlook plan takes a different tack as the policy has a lifetime excess of £5,000. Once this excess is reached, the premiums double but all claims are met in full. The family in the example would pay £62 a month until they all reach their individual £5,000 excess. Once this was breached the premiums would rise to £124. If only the father, for example, breached the excess limit, the monthly premiums would rise to £85.

Standard Life Choices Policy offers excesses of £1,000, £2,500 and £5,000. If the example family chose the £5,000 excess, they would pay £19 a month. If they chose to take a £100 excess with the firm's Primecare Saver, they would pay £106.46.

• John Hounslow has had private medical insurance since 1974 but now, aged 72, he is beginning to wonder whether it is worth the money. 'Over the years I have paid far more in premiums than has been paid for my treatment,' says John, from Fareham, Hampshire. 'My insurer, PPP, is now asking for £5,000 a year for my wife and myself, but won't cover the cost of the regular check-ups we need for pre-existing conditions.

'This means we will spend about £600 on monitoring and then the £200 excess each before we can claim. I am beginning to think we would be better putting our money into a high-interest savings account and self-funding.'

Because both John and his wife have pre-existing conditions, they cannot move insurer for a cheaper deal and keep full cover. Their existing illnesses would be excluded either indefinitely or on a moratorium basis (whereby cover is only included after several claims-free years).

Their options are to keep paying the premiums, reduce them slightly with a less comprehensive plan, choose a high excess and ring-fence the required cash, or save all the money and pay for treatment themselves.

• You can compare more than 1,300 private medical policies and apply online. Click here.