Midweek Money: How to keep you and your bank account in the pink

HOW CAN you reduce the cost of medical cover? Insurers are keen to find ways to do that. Robin Payne, the general manager for business development at Exeter Friendly Society, says: "One idea that we are discussing, although it's not at the final stage yet, is for people to anticipate the higher cost of cover in old age by making some kind of "reservation" on a policy. That way, they can obtain affordable cover."

One way is to reduce the level of cover required. For example, Exeter's Preferred Plan offers pounds 100 a night for people who stay in an NHS hospital. All outpatient treatment is paid for. Cover for a couple aged 59 and 57 would cost pounds 1,305 a year. By shifting to Exeter's low-cost option, which pays pounds 50 a night for NHS hospital care and does not cover outpatient treatment, the bill reduces to pounds 902 for the couple.

Peter Bye points out, however, that he will always recommend people to opt for outpatient treatment as part of a policy: "It is becoming more and more the case that outpatient treatment is taking the place of overnight stays," he says. In addition, the cost of such treatment can mount up.

Another method is to accept an "excess" on a policy, whereby the first slice of any treatment is paid for by the person receiving it. A spokeswoman at Prime Health, the PMI provider owned by the insurer Standard Life, explains: "We operate a system whereby a person accepting an excess up to a maximum of pounds 250 can cut the annual cost of their policy by up to 25 per cent."

Paying annually instead of monthly also helps: most insurers lop off between 4 and 5 per cent for contributors who pay in this way. Prime Health cuts 7.5 per cent, while WPA cuts up to 11.5 per cent for advance payment.

A less popular way of cutting the bills is to exclude children from the policy. This may be seen as cruel, but most experts agree that kids are in any case the most likely to be treated swiftly by the NHS, even in non-emergency cases.

Accepting restrictions on which hospitals are used for treatment can save money. Prime Health gives a 15 per cent discount for those who choose its 95-hospital network option. But increasingly, in a bid to contain premiums, many providers have reduced the freedom to choose hospitals from all but their luxury-style policies.

Companies usually raise premiums at least once a year, on top of further increases made on the basis of age bands. The age band increases differ among the top providers. For Bupa it is every five years; PPP has a small age-related increase every year; while it is every 10 years up to the age of 60 for Prime Health.

One recent entrant to the PMI market, the Dutch company OHRA, is attempting to break this price structure with a product, Medios Executive 2000, which, under its loyalty bonus, makes no age-related premium increases whatsoever.

Both Peter Bye and Steve Walker recommend looking out for policies whose age bands do not disadvantage people as they become older.

"My advice is for clients to think ahead to when they are older. There's no point in paying the cheapest premium now if it rockets up in 10 or 20 years' time," Mr Walker points out.

Peter Bye's own advice to clients is to concentrate on the level of cover needed - most insurers will offer a range of policies to suit different people's pockets - then to look at price and, finally, at the level of service offered. "There's no point in having cheap cover if the long-term consequence is that, when you need to use it, you have a bad experience in claiming for it," he says.

Steve Walker adds one tip: "Most insurers will place hospitals in certain bands depending on how expensive they are. "In London, for example, most hospitals are in band A because they simply cost more, irrespective of the level of care given there. We had clients who had recently retired from London to the country and they were looking for cheaper cover. They had been paying pounds 5,000 a year for band A treatment in London. I was able to find them an almost identical policy on a different band for pounds 1,400 a year." With dozens of providers offering a multitude of policies each, it always pays to obtain independent advice as to the most suitable one for your needs.

Nic Cicutti