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Health matters
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Article
Illness and accidents are a part of life. Pauline McCallion looks at how to protect yourself with insurance
Predicting the future is a tricky thing, in fact, it's pretty close to impossible, and the range of accidents that could befall you is wide. Being injured or falling victim to an accident may mean you suffer a significant loss of income, to the extent that you may be unable to keep up with things like mortgage repayments, or you could simply find it hard to maintain the standard of living you enjoyed previously. |
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Got it covered?
That's where health insurance comes in, or protection cover as it is sometimes known. Covering your income, your mortgage repayments or any other important finances simply makes sense. Insurance will help your household to continue to benefit from whatever wage you would normally contribute, for example, in the event of a spell of unemployment.
It's one thing to know you need health insurance, but it's often quite another matter to wade through the numerous policy types available to find the one most suitable for you.
"Perhaps what people think of first as a health insurance policy is private medical insurance (PMI)," says Nick Kirwan, protection marketing director at Scottish Widows. But as he goes on to explain, the term 'health insurance' also comprises critical illness insurance (CII), income protection (IP), and accident sickness and unemployment (ASU), also known as mortgage payment protection insurance (MPPI).
The main sticking point for consumers looking at health insurance, however, is often choosing between CII and IP. The boundaries between these products can get blurred, usually due to lack of understanding. They cover quite distinct areas and also pay out to claimants in different ways, so choosing between the two can make all the difference in terms of getting a policy to suit. |
| Critical illness insurance (CII)
CII is the most popular form of health insurance in the UK today, according to Kirwan. "It now covers around 12 million adults and children through about six million individual policies and has paid out over £1.6bn in claims since 2000," he says.
This type of insurance pays out a lump sum in the event of the diagnosis of a critical illness during the policy term. The applicable illnesses differ, depending on your provider and the specific policy you have taken out. But they can include diabetes, cancer, a heart attack or multiple sclerosis. Mick James, protection marketing manager at Standard Life, explains: "The bulk of the industry consists of CII. At least 24 different types of illness are usually covered. However, this number can reach 34, depending on the provider." |
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Important changes
Work is currently being done by the Association of British Insurers (ABI) - the trade body for the insurance industry - to make some important changes to the way CII is sold. James says consumers often find CII confusing. "The ABI's work is a big step for the industry," he says. "The product has come in for a lot of criticism as people get the wrong end of the stick in terms of what they are covered for."
Existing policies will not be affected by the ABI's changes, but those who take CII out in the future may benefit from more information about how it works and what it covers, along with widespread availability at a more affordable price. |
Income protection (IP)
As the name suggests, IP insures your income if sickness or disability prevents you from working. It covers different situations from CII, such as back problems or stress-related injuries and it pays out in the form of replacement income, rather than through a lump sum. The essential aim is to restore you to your financial position pre-claim, so you are likely to get your after-tax earnings, less any State benefits you can claim for being out of work.
This option suits those who have few, if any, financial commitments and probably no dependants, as it basically covers your ability to earn money. If you are self-employed, this insurance is particularly useful as you will not have an employer's scheme to fall back on while you wait for State benefits to kick in.
Employers must pay an employee's statutory sick pay for up to 28 weeks, after which they can claim incapacity benefit from the state. According to Kirwan, more than half of the 2.8 million people who currently have IP are covered through group schemes with their employer. |
Private medical insurance (PMI)
PMI is a simple policy type. If you become ill or need an operation, it pays out so you can receive treatment promptly, often at the hospital and with the surgeon of your choice.
It doesn't cover you for all illnesses, usually short-term injuries and curable illnesses are included, but cover obviously depends on the specific policy.
As mentioned before, people often think of PMI first when they look into health insurance. Kirwan says: "Around 6.5 million people have PMI, around 4.8 million of them through membership of a group scheme." |
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ASU/MPPI
Certain health insurances are specifically tailored to ensure you do not fall behind with your mortgage repayments in the event of accident, sickness or unemployment - hence the term ASU (also known as MPPI). Homeowners who bought their property after 1st October 1995 have to be out of work for nine months before any State benefits kick in to cover mortgage interest payments. It is therefore important to have insurance in place to avoid increasing arrears and facing possible legal action to recover the debt.
Such policies will cover your mortgage repayments only, however, so it is important to have some other kind of insurance to replace lost income and so on. Many mortgage lenders offer deals with free ASU for a certain period. This can be helpful in the short term, but you should seriously consider shopping around for insurance. Mortgage lenders are not insurance specialists, so you may find you can get a cheaper deal elsewhere. |
Cancer cover - the big debate
The recent launch of the Big V - Virgin Money's new cancer cover product caused some controversy among other providers, chiefly due to alleged attempts to compare the cancer-only policy to a full life or critical illness policy.
The Big V was created to address the lack of simple, affordable protection in a time of high risk of cancer, according to Virgin Money. It said customers could save up to 45% compared to an average critical illness quote.
However, Harriet MacKenzie-Williams, a consultant at IFA, Dixon Sutcliffe, says value will largely hinge on circumstances. "Presumably people with a family history of the disease will be looking at it," she says, "therefore, the premiums will probably be heavily loaded."
Craig Colton, head of HSBC Life UK, says: "Comparing the price of a cancer-only policy with that of a full life and critical illness policy is like comparing third-party, fire and theft with fully comprehensive car insurance. They're different types of policy." Colton goes on to point out that while a cancer-only policy may suit some circumstances, with the high rates of heart and other circulatory diseases in the UK, it makes sense to consider wider cover.
Despite debate over the way the Big V has been advertised, there does seem to be a lot of support for the product itself, provided consumers are fully aware of what it provides.
Scottish Widow's Nick Kirwan says: "By focusing only on cancer and by covering virtually all cancers, the concept is simple, making it easy for consumers to decide whether or not they want to take it out."
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TIP OF THE WEEK
Asking questions
The market for health insurance is broad, but the margin for error can cause problems for consumers. James recommends speaking to an independent adviser in order to get the best deal on products such as CII. "This is absolutely vital as insurance often involves very complex language and lots of conditions," he says. "The customer also needs to be more demanding and ask more questions." So, while health insurance can seem complicated, it actually provides a variety of options for consumers. It's simply a matter of doing your research to find the best deal at the best price for you. |
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