HEALTH insurance is not a homogenous product but comes in several guises, catering to different needs. Private medical insurance, as offered by market leaders Bupa and PPP, pays the costs of private medical treatment.

Hospital cash plans are often advertised, misleadingly, as an alternative to private medicine. They do not pay for private treatment, but pay a sum of money if subscribers or members of their families have to go into hospital. The insurance is designed to keep money coming in to help pay the mortgage, bills, and any extra expenses associated with the hospital stay, when the subscriber is off sick. It is particularly relevant to the self-employed and those whose income would be cut by loss of overtime and bonuses.

Cash plans are offered by Bupa, PPP and other medical insurers. The level of benefit depends on the premiums paid. The Hospital Savings Association advertises payment levels ranging from pounds 1.20 to pounds 7.20 a week. For the lower price subscribers receive pounds 63 a week as hospital in-patients and up to pounds 23 a year for optical and dental treatment. The higher premium pays out pounds 378 a week when in hospital and up to pounds 138 for optical and dental treatment.

Unlike private medical insurance, hospital cash plans tend not to require medicals or ask for details of past ailments. HSA also guarantees that the weekly payment will never be increased with the subscriber's age. Bupa's charges vary according to age. The married rate of pounds 7.40 a month for 18- to 39-year-olds for the lowest level of cover rises to pounds 10.80 a month for 60- to 64-year-olds.

Permanent health insurance (PHI) does not cover private medical bills, but pays out a regular income until retirement age if the subscriber is disabled and unable to work. Big life insurance companies such as Allied Dunbar, Sun Alliance, Friends Provident and Norwich Union dominate the market. Prime Health, a specialist health insurer, also ofters PHI.

Only 11.5 per cent of the working population is covered by PHI. John Humphries, life manager at Sun Alliance, says PHI is a seriously neglected area of insurance as people seem to believe that the state will provide. 'Mortgages are covered by life insurance, but expenses could be higher for the long-term disabled who might need their houses adapted.'

Sun Alliance's Income Security Plan guarantees the premiums throughout the life of the plan regardless of the number of claims or the rising age of the subscriber. It also offers a dynamic policy whose premiums and benefits rise by 5 per cent to 7 per cent a year.

Rates are loaded if the subscriber has a health problem, such as back trouble, or according to occupation. Loadings are high for blacksmiths, firemen, carpenters, welders and electricians. A typical 30-year-old, planning to retire at 65 years, would pay pounds 21.50 a month for cover of pounds 250 a week under Sun Alliance's plan.

Guaranteed PHI rates are becoming less common. Allied Dunbar, the market leader, reviews its rates every five years. If they are considered too low, they are either raised or the level of cover reduced. If they are too high, because of good performance in the investment, a cash value accumulates which the subscriber can take as a lump sum on retirement.

Allied Dunbar has recently raised its PHI rates from 7 per cent to 100 per cent, depending on the age, sex and occupation of subscribers, because of rising claims experience.

A variation of PHI, designed to cope with severe illness but not permanent disability, is dread disease or critical illness cover, which pays out if the subscriber contracts certain specific illnesses such as cancer, kidney failure, strokes and blindness. Sun Life has extended its cover to include loss of speech, HIV contracted through a blood transfusion or work, and loss of independent existence.

Critical illness insurance varies in the diseases covered, the timing and level of the payout and whether it is a stand-alone product or part of a life policy.

Sun Life's policy is part of a life policy, which will pay out on death, on contraction of a critical illness or on loss of independent existence. Ian Leech, a business development manager, believes it is better to have an integrated policy because the payout is certain if the subscriber dies suddenly. With stand alone critical illness policies, the subscriber has to survive for a minimum period - often 28 days - before being paid.

Prime Health has just launched a critical illness policy which pays out according to the subscriber's needs rather than a lump sum on diagnosis. The total payout ranges from pounds 100,000 to pounds 200,000 for 'Prime Critical Care Plus', but is only paid in full if the subscriber is still incapacitated after 12 months.

The first payment, 30 days after diagnosis, is either pounds 25,000 or pounds 50,000. Peter Dalby, the executive director, said those with a mild heart attack who could return to work quite soon would require the lower cover, whereas the higher cover was available to those seriously ill.

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