Medical insurance

When long term illness brings you to a standstill, you still need a regular income to pay off all the bills and any additional ones relating to your illness. Income protection insurance is designed to provide you with a monthly income if you develop long term sickness or disability. The maximum amount of cover you are allowed to take out is usually about half of your gross yearly earnings. Any plan that you decide to take out gives you a regular income and can be inflation proofed up to your retirement age.

When you start your plan, you will be offered a choice of pre benefit time periods. This is the length of time that you will have to be off work before the benefit begins. It can be from 4 to 52 weeks. The longer the waiting period, the lower the premiums you will have to pay. The cost of the plan will depend on

• The amount of cover you need
• Your age
• The type of job you have
• The length of the waiting period you choose
• Your planned retirement age

Premiums for Income Protection Plans are usually paid yearly or monthly by direct debit. There are three standard types of cover that you can choose from

• Level Cover - what you pay and what the policy pays out stays the same throughout the term of the plan
• Increasing Claim - what the plan pays out increases at a 5% rate during the course of a claim
• Both what you pay and the potential pay out increase at a 5% rate each year throughout the term of the policy

Income Protection can start at any time you want, which you state in your plan. It will run from the deferral period to one of the following, whichever is soonest

• The termination of the disability or illness
• The death of the insured person
• The plan expiry date, which is usually 50, 55, 60, or 65 years old.

This type of insurance is designed to pay out if you have a serious illness as specified on the policy. There are policies designed to cover 'women's cancers', with cover for breast, cervical and ovarian cancer, for example. Critical illness insurance is designed to provide a lump sum, which is paid tax-free. You can arrange to cover extra costs such as nursing care, paying for a stair lift, widening doorways, or ground floor bedroom conversion costs, etc.

Remember that when considering this type of insurance, you need to think about the likelihood of developing any of the conditions in the age range covered, compared to the cost of the premiums and the size of the payout. If you don't become ill with any of the conditions covered during the period you are insured, you will get nothing back.

Insurance companies do not usually cover any illness or disability that you had at birth or when the cover began. If you have (or have had in the past) a serious illness, you may not be able to take out a policy. If you don't disclose all your previous illnesses, you may find the policy is void when you try to make a claim. In other words, they may refuse to pay out. You may be able to buy a policy that does not cover your illness or any related illness. Or you may be charged a higher premium. You may also have to pay a higher premium if any serious illness (such as cancer) runs in your family. Critical illness insurance is usually only offered to people within a particular age range - usually up to 55 or 60. Typically with cancer you become ineligible just at the age at which the cancers covered become more common.

Different policies cover different illnesses. Each policy will only cover the illnesses set out in its 'key features' document that stipulates all the important information for the policy. There are some medical conditions that are normally covered by most companies. Then there are additional medical conditions that some of the companies will cover. Critical illness policies usually have exclusions that vary between companies. Again it is essential to look at the key features document. This document is also a good way of comparing the policies of different insurance companies.

You can choose critical illness cover as an extra benefit on a life insurance policy. This usually means that the policy pays out if you die or suffer a critical illness. These plans generally only pay out once and then end - so they don't continue to provide life cover after paying a critical illness claim. You can include critical illness cover in your mortgage, but most mortgage companies insist that you take out life cover at least for the term of the mortgage as well. Some plans also include critical illness cover for your children. For an extra cost, you can have a critical illness policy that pays out at diagnosis and then again if you die.

For most policies you pay a regular premium, every month or once a year. The amount of cover you can buy obviously depends on the premium you can afford. The premium cost depends on your age, sex, health, occupation, whether or not you smoke, the amount and type of cover you need and how long you need the cover for. The premiums may increase over the time that you have the policy, however some companies offer policies that guarantee never to increase the premium during the term of the contract.

To take out critical illness cover, you must be in good health and within the age range of usually 18 to 60. Most policies include the option to cover you and your partner - the lump sum will be paid to the first person who becomes critically ill.

You can buy a policy direct from an insurance company or through an Independent Financial Adviser or other salesperson. You will be asked to fill in an application form, decide the amount and type of critical illness cover you want, and the period you want the cover for.

You will also be asked to give details about yourself, including your occupation and health. Depending on your medical history and the amount of cover that you want, the insurance company may ask your doctor for a medical report. You can ask for a copy of the report if you want to do so. You may also need to have a medical examination. The insurance company will pay for these.

Private medical insurance is designed to cover the costs of private medical treatment for curable short term illnesses and some long term ones.

Insurance companies do not usually cover any medical condition that existed in the last five years. So when you apply for your insurance, you fill in a form called a moratorium, which asks for details of your medical history. These conditions may automatically become eligible for cover later, but only if you have no symptoms, treatment, medication, tests or doctors advice for that condition for a continuous period of (usually) two years, after your policy started.

There are some conditions which will probably never be eligible for this delayed cover because they will always need regular, or occasional, treatment, medicines, tests or advice.

Insurance companies will honour the policy and pay for the treatment of cancer as long as the cancer is in a curable state. So it will cover treatment like chemotherapy, radiotherapy and surgery. If it is decided that the cancer cannot be cured any more, and it becomes terminal, the cover will stop.

If you want this type of insurance, you need to work out what kind of policy you think would suit you best. To do this you need to know that treatment is categorised as

• Inpatient - this is when you go to hospital for private treatment or investigations and stay for one or more nights
• Day patient - this when you go into hospital for private treatment or investigations but do not need to stay in hospital overnight
• Outpatient - this is when you receive treatment, investigations or consultations which do not need you to stay in hospital either as an inpatient or a day patient

Your choice of cover will affect what you pay. The choices you will have include

• Paying an excess yourself
• Choosing a different grade of hospital accommodation
• Paying for part of your treatment
• Receiving treatment under the NHS when it is available within 6 to 12 weeks
• Choosing to receive treatment at a specified hospital

Before you have any treatment privately, you should call your insurance company to check that you are covered for the treatment that you will have. Your GP and specialist will probably need to fill in and sign your claim form. Your specialist may recommend tests and admission to hospitals. Some specialists have their bills paid directly by the insurance company. Others will send the bills to you.

This type of insurance provides a planned way of paying for all or some of the cost of any long term care you may need now or in the future. Through a lump sum payment in advance, or regular premiums, you can buy insurance to cover the cost of care in your own home or in a residential or nursing home. Long term care means just that - care that if it starts, will be needed for the foreseeable future. Also 'care' includes many different features, from someone to do domestic work in your home, through to respite care which offers a break for your carer, and a place in a residential or nursing home.

If you already have cancer, there are policies that cover the need for long term care insurance. It is possible to pay a single premium to buy a policy that will begin by paying for care immediately (Immediate Need Plans). These policies guarantee future payments towards the cost of nursing or residential home fees for as long as necessary.

You will be able to claim long term care insurance if you are unable to carry out an agreed number of normal daily tasks. This may include being unable to get around, or bathe, dress or feed yourself, or use the toilet unaided. These tasks are often called ADL in the insurance company literature - activities of daily living. The individual policy provides exact definitions of what is covered and at what level you qualify for a claim. Local authorities use different criteria for assessing care needs. If you qualify for help from your local authority, this does not necessarily mean you will be able to make a claim on your policy.

In most cases you send a claim form to your insurance company, who may ask your doctor for a report. They may also want independent medical advice and information about your condition, for which they will pay. Once a claim is agreed, your insurance company can advise you on local care services, discuss with you the type of care you need, and can often arrange this care for you. Some policies pay the care provider directly and some insurance companies may be tied to particular care providers.

With immediate need plans, the payment of the claim will usually begin straight away, without having to check your daily activity or get additional medical information.

Types of long term care insurance policies

There are two main types of pre funded policies. Firstly, there is traditional insurance. You pay a single or regular premium into a 'common pool' to insure against possible future events. These policies allow you to choose the type of care you want to have. This can be varied to care for you if your condition is getting worse. These policies are not investments - if you cancel the policy, you won't get any money back and won't be able to claim after you have cancelled it.

Secondly, there is the single premium investment bond. This can be bought at any age. The premium needed to pay for the long term care insurance is withdrawn by the company each month from the value of the bond. If care is never needed, then the value of the bond is returned to your estate.

The cost of policies

The cost depends on your age, sex and state of health when you buy long term care insurance. There are obvious advantages to starting when you are young because the premiums will be lower and your medical history is likely to be better.

Cost of policies is also determined by whether you want the policy to provide for care in your own home as well as residential or nursing care.

Look at the section on buying life insurance for guidelines on what to look for when choosing a policy. There are also organisations that can help you when choosing a broker or making a complaint.