UK expatriates and those who work or live abroad for months at a time have traditionally taken out i...
UK expatriates and those who work or live abroad for months at a time have traditionally taken out international private medical insurance (PMI) to cover the cost of hospitalisation and treatment. However, many domestic income protection (IP) and critical illness (CI) policies offer a degree of cover to people living and working abroad and can be significantly cheaper than PMI. So should IFAs be recommending them to clients who plan to spend time abroad?
For many years, international PMI has been the prudent insurance cover for UK citizens abroad because national health systems overseas often exclude foreigners and those who do not pay taxes in that country. PMI is designed to cover the costs of medical treatment for curable short-term conditions, but long-term treatment and any subsequent loss of income are not covered.
PMI is also expensive. Medical inflation in the UK is currently around six basis points higher than economic inflation, and as more people claim on their policies the premiums are pushed higher. This phenomenon is not unique to the UK - many other countries are in a similar, if not worse, situation.
With the continued globalisation of work and travel more people than ever are living and working abroad and for longer periods of time. This has led to increasing numbers of people looking to insure themselves against illness or injury, and loss of earnings while overseas.
Domestic policies
Most domestic IP and CI policies contain elements of overseas protection. For example, most will provide cover for those who need to make a claim while on holiday.
Rod Macdonald, head of sales and marketing at Permanent Insurance, says that when someone goes on holiday, it is obviously important for them to know that they are still insured. If a person needed to make a claim while on holiday, it is unlikely they would refuse to return home for treatment if they are able to do so. Nevertheless, insurers must allow for claimants being unwilling or too ill to be repatriated immediately, so the length of time for which insurers provide overseas cover on domestic policies is often several months.
This period of eligibility varies between insurers. If a client intends to work overseas in the long term when they take out a policy, then most insurers would consider other factors, such as occupation and destination, before underwriting the cover.
Peter Telford, head of life assurance at Legal & General, says that people who plan to live long term in the developed world would be covered under Legal & General's domestic CI and IP policies, but those living in other countries would only receive a limited period of cover.
He says: "We guarantee to meet a claim from the First World, but in other countries we reserve the right not to pay. The crucial thing is where you are when you claim."
Diana Harding, business development manager at Canada Life, says that it takes a similar approach: "We allow cover to people travelling in the EU, Canada, the US, Australia and New Zealand, but we limit payments in other countries to three months because it is so difficult to get decent medical evidence."
Collecting evidence
Discretion appears to play a part as to where and for how long people are able to claim. Telford says that the flexibility of the insurance company depends largely on the quality of the medical evidence provided.
"There would be no contractual or coverage difficulty in principle, as long as the insurer can collect the evidence it needs to verify the claim," he says.
Most domestic policies specify geographical limits to the cover, but they will not necessarily become invalid if the policyholder travels outside them. Allied Dunbar, Scottish Widows, Scottish Provident and Zurich, for example, place no time limit on IP benefits to clients who are outside the specified countries. Nevertheless, CI and IP policies are underwritten on a UK risk basis, which means that if a customer finds it necessary to make a claim from overseas then its success may depend on how similar the country they are claiming from is to the UK.
Harding says that this is due to problems caused by the logistical difficulties of verifying claim forms written in foreign languages and ensuring the expertise of foreign doctors.
"After six months of paying out IP cover, we would be looking for a re-evaluation from a UK doctor. With CI, we would be looking for someone to return to Western Europe immediately to get a doctor's assessment," she says.
However, it is not only the location of the country that is important when making a claim, but the location within the country as well, because most major cities have better medical facilities than the outlying regions.
Peter Fenner, marketing analyst at ERC Frankona, says: "In many Third World countries, medical facilities in cities are often much better than elsewhere and the availability and quality of these may have an impact on whether a policyholder even needs to claim or not."
While domestic policies do afford some overseas protection, they are not designed for this purpose, so there are likely to be gaps in the cover they provide.
Nicola Smith, marketing consultant at Swiss Life, says: "Most insurance companies providing domestic CI and IP cover do offer a degree of protection to customers who go overseas for several months, but they do have their limitations and IFAs need to be aware of their clients requirements."
Harding argues that domestic CI on its own is not sufficient for those wishing to live abroad because it will only pay out for specified conditions rather than replace income over the long term. And although it pays out a large lump sum to claimants to pay for their own treatment, it is a finite amount which will quickly be exhausted given the high cost of medical treatment.
Overseas IP claims
However, there are also problems with domestic IP cover if a claim is made from overseas. IP is designed with the UK State benefits structure in mind on the basis that claims can be monitored. Therefore, there are potential problems for policyholders outside the UK as a result of the different entitlements to State benefits coupled with the inability to monitor claims.
However, Harding believes that CI and IP are good alternatives to international PMI for those wishing to spend months rather than years overseas, since they can both be a good deal cheaper. Those not planning to live abroad permanently are also more likely to want to return home for medical treatment.
If a client is planning a more permanent move then they may well be better insured if they took out a specific international policy, whether it is PMI, CI or IP, argues Macdonald.
"You may need an international cover policy if you are going on an open-ended trip because our domestic policies are only designed to cover short-term trips," he says.
However, few UK insurers offer specific international IP or CI. One that does is Scottish Provident, which has a range of term-based products that can be purchased by those moving overseas. The products are essentially the same as the insurer's domestic policies, unless the client is already living abroad, and then they are underwritten differently.
Roger Edwards, product marketing manager at Scottish Provident, says it has tried to take a different approach to international policies and that there are no limits placed on the claim as long as the policyholder keeps paying the premiums. However, it does insist on a diagnosis from a doctor in Europe, North America or Australia.
Goodfellows offers a hybrid product called Disability Safe that can be used for overseas use. It is a blend of IP and CI which pays out a monthly income and there is an option to take a lump sum payment after two years. Simon Burgess, managing partner at the insurer, says the product can supply cover to anyone, irrespective of their occupation and their location in the world.
He says: "We have a specific international policy, but we do not differentiate between claims anywhere in the world and we have a worldwide directory of approved medical specialists and hospitals in every country."
Essentially, domestic IP and CI cover will protect people in the short term, but an individual seeking to work abroad should be advised to tailor their protection package to the country they will be residing in and to cover all possible eventualities. International PMI may play a part in this, but for comprehensive coverage policies which protect the income stream or pay out on diagnosis of a serious illness should also be considered.
