A brief introduction to health insurance, last updated by the author October 2016.
There are a number of different types of insurance related to the health of individuals. Two of the most commonly purchased are:
- Personal accident. This pays the benefit stated in the policy if the insured suffers an accident. It can be extended to provide cover if the insured is off work due to sickness
- Private medical expenses insurance (also known as health care insurance). This provides cover for those who seek private medical treatment outside the NHS when they are ill. It offers greater choice over where and when the treatment will be carried out, and by whom.
Typical cover provided
Cover is usually arranged on an annual basis. It is available as a stand-alone policy, but is often purchased as an add-on to another policy, such as travel, motor and household. Sickness cover is usually only available as an add-on to personal accident insurance, as insurers view it as presenting a greater degree of risk.
Cover is provided in the event of accidental death or bodily injury for:
- capital sums: one off lump sum payments in the event of death or certain specified injuries
- weekly benefits: payable for a maximum of 104 weeks, if the insured is temporarily disabled due to an accident.
The capital benefits are:
- Death: this must occur within 12 months of the accident for the benefit to be payable
- Total loss of sight in one or both eyes
- Total loss of one or both limbs: this must occur within 12 months (sometimes 24 months) of the accident
- Permanent total disablement: this is not payable until at least 12 or 24 months after the accident, as it may take this length of time to determine whether the disablement is both permanent and total
- Permanent partial disablement: a lump sum is payable on a sliding scale depending upon the part of the body affected.
The weekly benefits are:
- Temporary total disablement: paid when the insured is unable to carry out his/her usual occupation
- Temporary partial disablement: paid when the insured is unable to carry out a substantial part of his/her usual occupation.
Limits apply to each of these benefits. Cover is often bought in 'units'; for example, 1 unit of cover may equal a capital sum of £10,000. The proposer can buy as many units as they like provided they are able to pay the premium. However, insurers try to ensure that any weekly benefits are not greater than the insured's normal earnings, as it may encourage fraudulent claims.
Sickness cover only provides weekly benefits. Cover is subject to a 7 day franchise and excludes sickness contracted within the first 21 days of the commencement of the policy period.
Cover usually only applies within the following geographical limits:
- Personal accident - worldwide
- Sickness - UK, Europe, USA, Canada, Australia and New Zealand. Sickness cover may be extended beyond these normal limits, subject to an additional premium.
The typical age limits which apply when taking cover out are:
- Personal accident: 16 - 70 years
- Sickness: 16 - 60 years.
Cover can be arranged individually, but is often arranged on a group basis by an employer as an employment benefit, or for members of a club or other affinity group.
Cover for individuals, can also be extended to include a spouse and eligible dependants (usually up to the age of 18 or 21 years) under the same policy.
A range of benefits are available, including the costs of:
- Hospital charges, including accommodation, theatre fees and the cost of surgical dressings and drugs
- Specialist's fees for both consultations and treatment, including surgeons' and anaesthetists' fees
- Other costs, such as ambulance fees and home nursing fees
- Dental and optical treatment fees
- Complementary therapies
- A cash benefit while treatment is being received free of charge under the NHS.
Not all of these benefits are provided by every policy. Cover is provided for both in patient and day care treatment. There is usually a limit to the amount payable in any one year.
The main optional extension to a personal accident and sickness policy is legal expenses cover. This provides cover to pursue legal action against a negligent third party responsible for the accident which caused the death or injury.
Variations to the cover are available through a range of policies, offering differing levels of cover and choice of treatment. Low cost policies provide more limited benefits, with restrictions on the level of hospital accommodation which can be chosen. They may also require the insured to use the NHS if treatment is available within a specified period of time; for example, within 6 weeks of diagnosis. The most expensive policies provide wide ranging cover with complete choice over where and when treatment is available. An insurer may also add on benefits such as travel insurance, discounted gym and fitness club membership, overseas cover, wellness benefits, health screenings, information and help systems, complementary and alternative therapies, and critical illness cover.
Typical exclusions to a personal accident and sickness policy are:
- the insured being under the influence of, or being affected by, alcohol or drugs, unless under medical supervision
- engaging in aviation, other than air travel as a passenger
- self-inflicted injury or disease
- physical defects or infirmity which existed prior to an accident
- hazardous pursuits
- childbirth, pregnancy, venereal disease or AIDS
- war risks.
Typically, a private medical expenses policy will not provide cover for:
- long term chronic conditions
- medical conditions for which the individual has received treatment within five years of taking the policy out
- long term residential care
- normal pregnancy and maternity
- routine dental treatment
- homeopathic treatment
- cosmetic treatment
- routine sight testing
- treatment which has not been recommended by the patient's GP, except in an emergency.
Some of these exclusions, such as pregnancy, may not apply to the most comprehensive policies.
The main rating factors are:
- Personal accident insurance and sickness insurance. In assessing the risk, the underwriter needs to understand the physical condition of the person and their lifestyle. The main rating factor for is the occupation of the proposer. It is usual for insurers to group occupations into four main classes, applying premiums according to the level of accident/health risk involved. Other factors which are taken into account include age, weight/height, leisure activities, extent of air travel and accident history. Generally an additional premium is charged for sickness cover, calculated as a percentage of the personal accident premium
- Private medical expenses. For individual policies age is a key rating factor, with premiums tending to rise as age increases. The premium will also vary depending on the level and scope of cover selected. For group policies premiums tend to be based on the overall claims experience.
Cover for personal accident insurance is provided by some composite general insurers, in addition to a number of specialist insurers, who have developed an expertise in this particular type of product. Cover is available directly from insurers, as well as through insurance intermediaries. Some free cover is often offered by credit card companies and in connection with 'paid for' bank accounts.
Private medical insurance is predominantly underwritten by specialist insurers. It can be purchased from insurers directly over the telephone or internet, as well as through intermediaries.