Your money: High time for private health schemes

Tony Lyons looks at the need to take out medical insurance as the Government gradually changes the social security landscape

Despite the present and past Governments pouring extra millions into the National Health Service, hospital waiting lists have continued to lengthen. At the same time, advances in medical science have increased average life expectancy.

This has led to increasing demand for facilities for long term care. Sensing a growth area, medical insurers such as BUPA have been taking over companies that provide nursing homes and care for the sick, elderly and infirm

With the state system creaking under the strain, the Government has decided that one of its main tasks is to reform the welfare state. The recent Green Paper on welfare reform from Frank Field, the Cabinet Minister responsible for overhauling our social security system, is a signpost for the future.

But we already know that we are going to have to rely less on the state and more on our own efforts in the 21st century, whether it's for pensions or looking after our financial care if we become infirm or need long term medical care. In most cases, this means that we will have to have to pay premiums to insurance companies to protect ourselves against the financial costs of illness and disability.

Medical and health insurance has been enjoying increasing sales in recent years. The Association of British Insurers, the trade body for the industry, estimates that in 1996, the last year for which figures are available, almost 6.5 million of us paid out some pounds 1.8 billion for private medical insurance.

Changes brought in last year by the Government, including the withdrawal of tax relief on medical insurance for the over 60s, has led to a slowdown in sales of private health insurance. But this is expected to be just a temporary blip. In fact, the Monopolies and Merger Commission expects it to grow at 5 per cent a year.

And health insurance of one kind or another is becoming an increasing necessity. In the event of illness or injury, how will you pay your everyday household bills such as the utilities, council tax and the mortgage, let alone provide an adequate standard of living?

If you are self-employed, then you have to provide for yourself. If you work for someone else, you will find that most employers will only pay at best six month's salary. State benefits are low, only pounds 62.45p a week for anyone off work more than 28 weeks, and help with mortgage interest payments is only available after six months.

"People are confused as to exactly what protection the various products on offer provide and in what circumstances each might be suitable," said Guy Barker, managing director of NatWest Life. "This is one of the reasons why fewer than one in six adults currently has any insurance against the financial consequences of a major illness or disability.

Statistics show that every day 850 people are killed or injured in road accidents, 700 are diagnosed as having cancer, of whom 40 per cent will survive for at least five years, and 800 suffer a heart attack. There are, of course, many other illnesses or accidents that can lead to us being unable to work. Estimates are that at least one in five of us will suffer from a serious illness during our working life.

Unfortunately, comparisons between the companies offering health and medical insurance can be a problem. For example, some exclude certain illnesses which others cover, some have restrictions on certain types of treatment, and some have long waiting times before they pay out.

Much of the healthcare and medical insurance market is unsupervised by the regulatory authorities. In the recent past, this led to warnings from the Personal Investment Authority, the fianncial watchdog, about some of the selling techniques. Concern was raised particularly with regard to long-term care products for looking after the elderly where it was found that too many salespeople were failing to warn investors of the potential investment risks involved.

As we live longer and the range of specialist treatments and care expands, health and medical insurance is becoming more of a necessity. This survey explains the different types of health and medical insurance polices. An independent financial advisor will be able to give you more detailed information to find the one that best meets your needs. If you do not have an adviser, IFA Promotions (tel: 01179 711177) can provide a list of those in your area.