Love Is Not Enough: A Smart Woman’s Guide to Money. Merryn Webb Somerset

      Health insurance? Probably not

      We hear so often these days that the NHS is dreadful that most of us are slowly becoming convinced that, if we can afford it, we should take out medical insurance. But is it really true? I don’t think so. For starters note that medical insurance doesn’t cover the conditions most of us need treatment for. It doesn’t cover childbirth (not even emergency Caesareans), it often doesn’t cover depression and it also very often doesn’t cover chronic or incurable illnesses such as diabetes, asthma or multiple sclerosis. It is also utterly useless in an emergency: private hospitals don’t have emergency rooms and anyway the NHS never makes you wait more than an hour or two to have a broken leg sorted out. Medical insurance isn’t cheap – the cheapest I could find for myself when I looked was nearly £30 a month and it came with so many exemptions that I would have had to be almost dead before I was able to claim on it.

      The alternative is simply to save all the cash you might have spent on insurance into your Calamity Account and then to pay for any treatment you might need that you don’t want to have or to wait to have on the NHS. This sounds frightening but it shouldn’t be. For starters let’s not forget that you’ve already paid for the NHS via your taxes and that it really isn’t that bad. I’ve had nothing but good experiences with the NHS over the last four or five years and it is generally accepted that in emergencies and in the care of people with serious or terminal illnesses the organization does an excellent job of providing comprehensive medical care. It’s also worth remembering that the doctors you see privately will be the same ones you would have seen on the NHS – they’re just bumping up their incomes by going private – and that NHS consultants are usually the ones at the cutting edge of healthcare.

      Where the NHS sometimes (but far from always) falls down is on the treatment of acute but curable conditions, but if you are saving correctly into your Calamity Account you should be able to pay for this yourself if you feel you need to. Note that 80% of these treatments are dealt with on an outpatient basis (blood tests, consultations, x-rays, scans and the like). These aren’t particularly expensive. What are pricey, on the other hand, are mainly procedures that you won’t need until you are heading for your fifties and sixties (hip replacements, for example) by which time your Calamity Account should be looking pretty healthy if you have regularly put £50–£100 a month into it in lieu of paying for insurance. A private hip replacement comes in at about £7,000, cataract removal at about £2,000 and a coronary artery bypass graft between £2,000 and £15,000. Note, too, that only 4% of private health care claims are for sums over £5,000.

      If you aren’t convinced on this one and still want health insurance, one way to cut the costs is to get it from a firm that will allow you to pay for your own treatment up to an agreed level (the excess – usually anything up to £5,000) and then it will pay any costs beyond that itself. This can more than halve the cost of premiums yet still leave you covered should something horrible happen to you. See www.insuresupermarket.co.uk to find a cheap policy.

      Critical illness insurance? No

      The idea of critical illness insurance is that it pays you out a lump cash sum if a long-term illness makes you unfit to work. Advisers are very keen to sell this to everyone as it pays them massive commissions (they can pocket 120% plus of the first year’s premiums as a reward for selling you the policy, so if your premiums come to £800 a year they can walk off with well over £1,000 for a couple of hours’ work). However, this kind of insurance doesn’t make sense for many of us. If you are young and single you probably don’t need it, for example. I took out my first mortgage when I was single and living alone but my mortgage adviser still insisted that I needed critical illness insurance at £50 a month. I believed him for a few minutes until I remembered that I was in my twenties with no dependants. If I had suddenly found myself with a critical illness I would have sold the flat and gone home to my mother. No insurance necessary.

      But even if I had thought I might need critical illness insurance it might not have done me much good had I actually got a critical illness. One of the reasons insurers can afford to pay advisers such huge commissions to sell critical illness insurance is because they rarely pay out on it so they get to keep most of the premiums (for every 100 policies sold only 3 claims were made in 2005). This is because it only pays out if you suffer from one on a very specific list of ailments (mainly cancer, heart attacks and strokes) before your mortgage is paid off (most policies stop either at 65 or when the mortgage is paid off), which most of us are pretty unlikely to get in that time frame. And one in five claims fails anyway, often thanks to some minor legal detail. Which? magazine points out that the application forms for critical illness insurance are so full of medical jargon and demands for detail that they make the average consumer vulnerable to oversights that could (and do) invalidate their claims. You often have to list every appointment you have had with your doctor in the last five years. Who can do that accurately? There have also been cases where a claim has been refused because people have put their height down incorrectly on forms.

      Generally you are probably best to ignore critical illness insurance and get something called permanent health insurance (or income-protection insurance), which is much cheaper to buy and pays out not a lump sum but a monthly income until you are ready to go back to work or you retire. That said, this is often just as hard to claim on as critical illness insurance. Insurers will do their utmost to invalidate any claims – finding inconsistencies on your application and in your medical records just as they do with critical illness, for example. Many policies are also written on an ‘any occupation’ basis so even if you can’t do your old job, if you can do any job at all despite your illness (envelope stuffing and so on) you will not be eligible for a payout. Only get a policy like this if you have read the small print and it is on an ‘own occupation basis’. And if you have a reasonable amount saved or your company provides excellent sick pay or long-term sickness benefits don’t get it at all. Consider saving into your Calamity Account instead.