How healthy is your insurance?

Medical misery may be hidden in the small print.

Finding yourself diagnosed with a serious illness is bad enough. But that misery is compounded for many people when they find the health insurance whose premiums they have been paying for years will not pay up.

Finding yourself diagnosed with a serious illness is bad enough. But that misery is compounded for many people when they find the health insurance whose premiums they have been paying for years will not pay up.

Disputes can often arise over what insurers call pre-existing conditions. If you already suffer from a particular illness or condition, you must tell the insurer when you take private medical insurance (PMI) out. If you do not, the insurer is likely to refuse a claim for any treatment relating to that condition.

The Insurance Ombudsman has partially upheld a complaint from a man whose claim for a heart operation was refused. Although he had a history of hypertension, the policy did not require him to disclose his medical history. But the sales representative did not point out that treatment for any condition the applicant was aware of in the previous five years would not be covered.

Many consumers are confused about what constitutes a pre-existing condition, says Jan Lawson of private medical insurance specialists the Private Health Partnership. For example, someone who already has a pain in their stomach may take out PMI. "The fact it was diagnosed later as a peptic ulcer doesn't mean it isn't a pre-existing condition," she says.

But this is a grey area. There are other conditions which a policyholder may have but which they cannot reasonably be expected to be aware of.

Stuart Cliffe of the National Association of Bank and Insurance Customers cites the case of a man who found his insurance invalidated because he had diabetes, even though he had not known when he bought the insurance. The insurer said he must have known.

"There is a heavy responsibility on the person selling the policy - they have to tell you what it does and does not cover," says Suzanne Moore of the Association of British Insurers. "But it is still important for the policyholder to look through the contract."

The ombudsman says pre-existing conditions clauses can be onerous and should therefore be clearly drawn to the attention of the policyholder.

In such a complex marketplace with so many different levels of cover provided, it is easy for consumers buying PMI to make mistakes.

The most expensive PMI policies - comprehensive plans - typically cover dental, optical, maternity and alternative therapy costs. Standard plans offer a spread of cover but limit payments for out-patient treatment and home nursing. At the other end of the scale, budget plans tend to offer a more limited hospital choice with standard rooms and do not cover out-patient treatment.

"Most people buy health insurance because they believe they will be covered in every eventuality, but when they come to claim, they find they are limited in their choices," says Mr Cliffe.

It is vital to know exactly what is not covered. BUPA's standard exclusions for all of its policies include GP services, cover for long-term illnesses which cannot be cured, accident and emergency and neo-natal care. It believes such exclusions are typical for PMI policies.

Consider getting independent advice before buying medical cover. Ms Lawson says: "The scope for getting it wrong is enormous. We are sometimes asked to intervene when a person has bought insurance directly. They may not have read the details or made assumptions that don't turn out to be true."

Increasingly, health insurance is arranged by telephone, so consumers often see nothing in writing until after the deal had been struck. The National Consumer Council has recommended that the duty on consumers to disclose all "material facts" should be changed. Insurance companies should give written details to consumers of what the duty to disclose information meant, and that duty should be to disclose facts the consumer knows to be relevant to the insurer's decision.

When it comes to claims, are some insurers more lenient than others? Schemes underwritten by Lloyds tend to be more black-and-white, says Ms Lawson, with claims outside the policy wording invariably declined. "Some insurers do incline more to the client's view in a grey area, but ultimately they all end up making the same decisions. The difference is whether you have to fight for it or not," she says.

Misunderstandings have arisen in the past over what is covered by critical illness insurance (CI). Unlike PMI, this tends to pay a lump sum on diagnosis of a serious illness such as heart attack or cancer. CI is still relatively new in the UK and there have been teething problems, says Jack MacNamara, chief underwriter for Lincoln Financial Group, one of the first to market CI here.

Lincoln provides clients with a booklet at the point of sale which explains "in layman's terms" exactly what is covered, says Mr MacNamara. "Clients have not been able to compare one critical illness policy with another, so as an industry we have worked out standard definitions."

Insurance Ombudsman, 0845 600 6666; Private Health Partnership, 01943 851133; National Association of Bank and Insurance Customers, 01291 430009