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Medical Insurance

What is it?

Private Medical Insurance (PMI) pays for you to receive private health care. The main attractions are avoiding the possibility of National Health Service (NHS) waiting lists, the choice of where and when you're treated and more comfortable hospital stays.

It does not cover accident and emergency treatments, GP services or normal pregnancy, but can generally cover most other curable ailments that you might need treating.

The extent of cover depends on the policy you choose, ranging from limited cut-price options to expensive 'bells & whistles' policies.

Do I need it?

Few would argue against PMI being a re-assuring thing to have, but you need to balance the cost of cover versus your willingness to rely solely on the NHS.

You could also take the view that, in a worst case scenario, you might simply pay for private treatment yourself - known as 'self-pay'. Of course, some complex procedures might be prohibitive, but many treatments cost thousands, rather than tens of thousands of pounds.

Candid Example Mr A, age 30, decides that rather than pay monthly PMI premiums of £50, he'll save the money and use this, if necessary, to pay for private treatments himself. Over 50 years, assuming annual growth of 1.5% above inflation in a tax-free account, the savings would have grown to £44,567 (in today's terms).
Of course, who knows how much private treatment he'll need over the next 50 years and how much it will cost, but these figures suggest that self-funding should not be dismissed out of hand.

Whatever the merits, PMI is certainly popular. According to the Association of British Insurers (ABI) just over 7 million people in Britain have some form of PMI (based on 2007 stats). Of these about 60% are covered by a company scheme and 23% by individual policies.

What's covered?

PMI is intended to cover short-term, curable, illness or injury. Examples of common illnesses usually covered are cancer (not always ongoing costs), heart problems and joint problems.

Policies usually cover costs for inpatient (i.e. you stay in hospital) and day-patient (i.e. you're admitted to hospital but only for the day) tests and surgery. Outpatient costs (i.e. consultations etc. where you're not admitted to hospital) are not always included.

Cover varies between PMI policies more than most types of insurance, so it's vital you check exactly what a policy covers before buying. In general, the more you pay the more comprehensive the cover.

What's not covered?

Beware that policies do not payout under certain circumstances. These vary from policy to policy but the most common circumstances include:

  • Going to a GP.
  • Going to Accident & Emergency.
  • Normal pregnancy.
  • Organ transplant.
  • Problems arising from alcohol or drug abuse.
  • Injuries from dangerous hobbies.
  • Conditions you had before taking out the policy.
  • Sex changes.
  • Dental services.
  • Infertility.
  • Cosmetic treatment.
  • Self-inflicted injury.
  • HIV/AIDs.
  • War.
  • Kidney dialysis.

How much cover?

Assuming PMI appeals to you then it's more likely to be a case of how much cover can you afford. The more you spend the greater the scope of cover you'll likely receive.

How long do I need cover for?

PMI premiums are reviewable each year, just like car insurance, so you simply commit for a year at a time. Because premiums usually increase as you get older, you might reach an age where cover becomes unaffordable. ABI figures suggest that premiums can double from age 35 to 60 and treble by 75.

What affects cost?

The cost of a PMI policy tends to be most affected by the following:

AgeHealthFamily HistorySmokingOccupationExcessNo ClaimsShared Costs

The older you are the more likely you'll claim that year, hence higher premiums.


Insurers usually offer two ways to apply for PMI when it comes to providing details of your medical history:

Full Medical UnderwritingMoratorium Underwriting

You provide full details of your medical history and the insurer may contact your doctor for more information. If you omit details the insurer could refuse to pay a future claim or cancel your policy.

When the insurer issues the policy they might exclude certain conditions based on your medical history.

Ways to buy private medical insurance

InsurerFinancial AdviserDiscount Broker

Buying a medical insurance policy direct from an insurer is unlikely to be any cheaper than using a discount broker and might be more expensive.

Medical Insurance Jargon

Here's some of the more common medical insurance jargon you might come across:

ABI Model DefinitionsA list produced by the Association of British Insurers that aims to standardise what is meant by 'critical' when applied to a specific illness.
All RisksContents insurance with all risks covers possessions such as a laptop or watches when taken outside the home.
Building InsuranceInsurance that intends to provide sufficient cover to totally rebuild your home if necessary.
Contents InsuranceInsurance that covers items that are not a fixed part of your home, e.g. TV, from damage or theft.
Convertible Term AssuranceA type of term assurance that allows you to convert into a whole of life policy.
Debt Payment ProtectionInsurance that's intended to help you manage your debts if unable to work through illness or injury.
Decreasing Term AssuranceA type of term assurance where the sum assured reduces over time, typically linked to a repayment mortgage.
Deferment PeriodPeriod of time that you must be unable to work for before you can claim on an income protection policy. The longer the period, the lower the premium is likely to be.
Employment & Support AllowanceState benefit intended to pay employees (and potentially the self-employed) unable to work through illness after Statutory Sick Pay ends.
EndowmentA type of life insurance policy that is also intended to provide investment returns. They have a very patchy track record.
ExcessThe amount of an insurance claim you agree to pay before an insurer pays the rest (for example, the first £50 of a claim).
ExclusionsInsurance policies often exclude certain risks or events. It's vital you check these before buying a policy.
Family Income BenefitA type of term assurance that pays out a regular tax-free income on death rather than a lump sum.
Full Medical UnderwritingWhen you buy private medical insurance the insurer asks for full details of your medical history and may also contact your doctor for more information.
Income ProtectionInsurance that pays out a monthly tax-free income if you're unable to work through illness or injury.
Increasing Term AssuranceA type of term assurance where the sum assured increases over time, usually inline with inflation.
Inpatient CostsThe costs of staying in a private hospital, usually covered by private medical insurance policies.
Loss AdjusterAn impartial claims specialist responsible for investigating claims on behalf of insurance companies.
Material FactInformation that would affect an insurance company's willingness to accept a policy, or the premium it would charge. Don't omit these when applying for cover as it could invalidate the policy.
Moratorium UnderwritingWhen you buy private medical insurance the insurer does not require details of your medical history. Any conditions that have existed over the last five years are not usually covered.
Outpatient CostsThe costs of private medical care when you're not admitted to hospital. Not always covered by private medical insurance policies.
Personal Accident PlansInsurance that pays out a lump sum in the event you have an accident and suffer a permanent or temporary disability.
PremiumThe money paid to an insurance company for an insurance policy.
Private Medical InsrancePMI, a type of insurance that pays for you to receive private health care.
Statutory Sick PayState benefit that pays employees if they're unable to work for at least four days in a row. Lasts for 28 weeks.
Sum InsuredThe maximum amount an insurance company will pay for a claim.
Term AssuranceSimple type of life insurance that offers cover for a fixed period of time for a (usually) fixed monthy premium.
UnderwritingThe process where an insurance company decides how risky it would be to insure you and how much to charge you for cover, assuming they're prepared to insure you.
Whole of LifeA type of life insurance that can run until you die, however old you might be. However, premiums tend to increase over time so it can become very expensive.