What should young families consider when taking out private medical insurance? Johanna Gornitzki investigates
Moving in with a partner, getting married and starting a family could be the best decision a person ever makes. However, alongside the joy this may bring, comes the heavy burden of responsibility. You are no longer single and carefree, but instead, have to make sure you can provide for your young family. This is usually the moment when many people start thinking about what they need to do in terms of protection.
One of many people's main concerns is what could happen to their family if they or their spouse were to fall ill and become unable to work. While the financial strain experienced when someone falls ill cannot be compared to the emotional stress this can bring, people still recognise the need for a protection policy that could serve as a financial security blanket.
Consequently, it comes as no surprise that critical illness insurance, which provides a lump sum in the event of the policyholder falling critically ill, is by far the most popular protection product among the British population.
Scare stories
Sales of private medical insurance (PMI), on the other hand, have not faired as well. This is largely because the product is seen as a luxury item as opposed to an essential purchase, particularly for the younger generation, who tend not to worry too much about their health. However, with the NHS continuing to experience long waiting times, and scare stories about patients contracting the MRSA virus from hospitals, it is likely more families will want to have the security of both rapid and safe treatment that a PMI policy could offer.
Before embarking on a search for the best possible individual PMI policy, it should not be forgotten that many employers are now offering private medical care as a part of their employee benefit offering. This could be very good value for money as there is a possibility that employees could add their spouse and children without any added cost. Even if that is not the case, most employers do allow their employees to include the rest of their family by paying a small extra fee.
"Seeing what is on offer by the employer should therefore be the first port of call when considering taking out private medical insurance," says Jan Lawson, managing director of The Private Health Partnership.
For self-employed people and the majority of those working for the public sector however, this is not an option. An individual policy is therefore the only alternative. This could prove to be good value if they know what they need to look out for.
For families contemplating taking out individual PMI there are a number of things to consider before making a decision. Generally there are two different ways in which insurers will price children. One way is to have a family price where the family is charged a certain amount regardless of how many children they have. This will usually be half the price of that for an adult, which means a family policy would be two and a half times the price of an individual policy. Other providers work on the basis that they will charge a low sum per child, which could be around £10 to £20 per month. Depending on a family's specific circumstances, one of the two options may suit them better.
Either way, however, says Dermot Cox, director of Carehealth.co.uk, this should not deter people from taking out cover for their offspring. "The price to include children when buying a private medical insurance policy is pretty low so you may as well include the children," he says.
Another aspect to take into consideration before making a purchase is that while children receive the same cover as their parents there may be certain benefits a family would want to ensure are included. This could range from a plan paying for one parent to stay in hospital while their child is receiving treatment, to allowing parents to add more children to the policy without any further underwriting.
Parents also need to be aware that there are very few private hospitals that offer specialist treatment for young children. "Only a handful of hospitals, such as Great Ormond Street hospital, have a paediatric clinic. It is therefore crucial to ensure the policy also includes the NHS Trust hospitals that do have these facilities," says Claire Ginnelly, national intermediary sales manager at Standard Life Healthcare.
Although these issues are important, the key driver behind many people's decisions is price. For a young family, whose budget is likely to already have been stretched to its limits, it is virtually impossible to spend more than a pivotal sum on private healthcare. And PMI certainly isn't cheap, with the average basic policy for a whole family costing around £50 to £60 per month and more comprehensive cover leaving a family around £150 out of pocket. However, there are plenty of ways to cut costs. Cutting out cover for certain treatments or restricting the choice of hospitals could help to reduce the cost of the premium. Another way to bring down premiums is to take out a policy that only covers specific conditions, such as cancer, heart problems, stroke and road and traffic accidents.
Dire consequences
Although this may cut the cost, Susie Colley, principal of West Country Health Care, warns that this could have dire consequences. "You may pay peanuts, but what do you get?" she asks. Agreeing with Colley, Cox says: "You shouldn't reduce the cover if you don't want to end up with a third class policy." Instead, he believes accepting an excess is the preferable option.
Consumers' buying habits would suggest so too, and this has now become the most popular way to keep costs down. Excesses typically range from £100 to £2,000, with many young families opting for £100 to £250. This could have a major impact on price.
Taking a family of four, for example, where the father is aged 35 and the mother aged 32, and their two children, aged three and six. They live in Basingstoke. If they opt for AXA PPP healthcare's budget plan, Assure, without taking any excess they would have to pay £74.53 per month. With a £200 excess, this plan would only cost them £51.60 per month, a saving of more than £20.
To help families make further savings on PMI, there is also the choice to opt for a six-week policy, which pays for private care straightaway when the NHS cannot treat the policyholder within a six week period. If the family in the example above took out the same policy but with a six-week option they would have to pay £52.18 per month, or alternatively £35.40 per month with an excess of £200.
However, even though there are ways in which the cost of PMI can be reduced, much remains to be done if more people, and young families in particular, are to afford it. With premiums not showing any signs of falling in the future, it is important for the industry to look at other solutions.
Today, most young families tend to choose essential/basic benefit plans. This is not because these plans are best suited to their needs but simply because it is unlikely that they could afford any other type. In fact, there are currently no plans specifically tailored to meet the needs of a young family in the marketplace. Lawson believes this could be the answer to the problem.
"One way forward is to make the market more segmented and for insurers to offer more specific products targeting, for example, young families," she says. Providers seem to be of the same opinion. "Sometimes parents want basic cover for themselves and then more comprehensive cover for the children. If that is the case, they should be able to do so," says Fiona Harris, head of actuarial and risk management at BUPA personal lines.
So could an increased choice help young families attain PMI? Alongside a wider range of choice comes the freedom to select a cover that doesn't always have to come with a multitude of bells and whistles attached to it. Although a long list of benefits may appeal to the more financially stable members of society, it is unlikely a young family would be able to justify that cost. For them, PMI cover that would meet their basic needs will always be the natural choice. It is the intermediary's job to help them find that policy.
COVER notes
• Some providers charge a certain family price regardless of how many children a family have got while others charge a low sum per child, which typically would be around £10 to £20 per month.
• Affordability is still key for young families when taking out PMI.
• Cutting out cover for certain treatments, restricting the choice of hospital or taking an excess could all help to reduce the cost of the premium.
