Your money or your health – you decide

Price comparison may not be the best way to buy private medical insurance.

After a pension, private medical insurance (PMI) is the benefit most valued by employees. But PMI is offered by only a quarter of employers to all staff, and just one in 10 firms extend it to their immediate families.

Against this backdrop of patchy coverage, many people – particularly when they move from an employer offering cover to one which doesn't – choose to buy their own PMI. But how do you get the best price and policy? Savvy consumers will be used to comparing their car and home insurance online, but when it comes to PMI, sites struggle to cope with the complicated demands of matching these policies accurately.

One website hoping to change this is the newly launched ActiveQuote.com. "Historically, price comparison sites have tended to direct consumers to the cheapest products first, but with PMI, price is not the most important factor," says Richard Theo, the director of ActiveQuote.

In contrast to car and home insurance policies, PMI policies differ on many variables. So the few comparison sites that have included PMI do so only on a rudimentary level, with the focus firmly on price. ActiveQuote, however, allows you to refine your search, whether that involves adjusting the excess, choosing a different hospital list, or adding or removing dental cover. More importantly, you can specify which policy benefits are vital and the site will automatically remove quotes that don't fit the bill.

A potential shortcoming is that somecomparison sites don't provide quotes from all insurers, which could mean you miss out on the best possible deal. A better option may be to use comparison sites initially to get an idea of what you can get before looking for advice elsewhere.

"Advice and comparison sites should complement each other. Consumers want the right products at the right price, but if they are in any doubt they should always ask someone for guidance," says Emma Walker, the head of protection at price comparison service Moneysupermarket.

PMI is often seen as a luxury, particularly during a recession, but many people are still choosing to go private. The number of people covered by PMI rose to 6.25 million last year, a rise of 3.7 per cent on the previous year's figures, the Association of British Insurers (ABI) says.

PMI is designed to provide cover for what are known as acute conditions, which are defined as curable, short-term illnesses that are likely to respond quickly to treatment. Common exclusions to a PMI policy are pre-existing conditions, GP services, accident and emergency admission and cover for incurable long-term illnesses, which are referred to as chronic conditions such as infertility and kidney dialysis.

What PMI will typically pay for, however, is in-patient tests, surgery, hospital accommodation and nursing. All the details of exactly what an insurer will and will not cover are set out in the "key facts document". For example, with cancer, some insurers provide cover at every stage of the disease, while others can put limits on the length of time you can receive treatment and may stop paying after two years.

"Most insurers make a large play on the quality of their cancer cover. Many say that they offer 'full cover', but it's worth checking the details behind this," says Shaun Matisonn, the chief executive of provider PruHealth.

Policies vary considerably in the level of cover but the most expensive include dental, optical and even alternative therapy. At the other end of the scale, the cheapest plans will typically cover in-patient care only. Be truthful about your medical history or risk having a claim turned down.

With treatments becoming more sophisticated and expensive, the cost of PMI is likely to rise. They also increase with the age of the policyholder: someone aged 45 would pay 25 per cent more than someone aged 35, while a 65-year-old would pay more than double the premium of a 45 year old, according to the ABI.

Despite this, there are several ways you can cut costs. "Set yourself a realistic budget; ask yourself why you want the product to start with. Do you want to be able to get in and out of hospital quickly? Or are you looking for a bit of luxury if you fall ill?" says Ms Walker. Consumers should always opt for the best policy they can afford, she says. "Start at the top end of your budget and work your way down, deciding what you can do without."

As with any insurance policy, taking on a bigger excess will reduce premiums. If you opt to receive treatment at a specified hospital or choose a different grade of hospital accommodation – generally treatment in London hospitals and other major cities is costlier than elsewhere in the UK – you should be able to shrink your monthly costs. Other insurers allow policyholders to cut costs significantly by agreeing to use the NHS when treatment is available within six to 12 weeks. It's also useful to keep an eye out for extra incentives. PruHealth, for example, rewards customers with a healthy lifestyle with credits as part of its Vitality programme. Going to the gym, having regular check-ups and quitting smoking can earn you Vitality points, which can then help to reduce premiums later.

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