Financial protection

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Contracts are usually arranged on an annual basis but can run over a shorter period. Policies may be arranged as a standalone plan or as a feature added as an optional benefit on another type of general insurance

The benefits paid will vary from plan to plan, but in general will include:

A lump sum on:

* Death

* Permanent disablement

* Loss of an eye§ Loss of a leg, foot or toe

* Loss of an arm, hand, finger or thumb

* Other specified injuri...

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PAS is generally used to provide cover for one-off events not covered by other insurances currently held. The insured conditions are subject to very precise definitions so the applicant must understand these. It is common for PAS, rather than IPI, to be held as it is more widely marketed and the premiums are cheaper. Despite both policies providing protection when the insured is unable to work due to accident or sickness, PAS is fundamentally different to income protection insurance. With PAS a limited level of benefit is payable for a limited period of time.

What is the maximum length of time that a benefit would be paid for under a personal accident and sickness plan?

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What is covered

Limits on time periods and cycles of treatment

Maximum payments

Circumstances in which cover is not provided

This is important as cancer can start as an acute condition but - if treatment is unsuccessful - become chronic. It is not uncommon for insurers to receive high value claims. Due to the high cost of claims and improvements in cancer care provided by the NHS, some insurers now limit the amount they will pay for cancer or exclude it completely. Most policies will also not pay all types of cancer care, for example, experimental treatments or drugs nor licensed in Europe or by the Government’s National Institute of Health and Care Excellence (NICE).

It is therefore important that the terms and conditions of the policy are clearly understood along with any restrictions and limits on benefits. To help provide customers with support, many insurers now provide specialist cancer nurses or claims staff to help and guide those claiming as a result of being diagnosed with cancer.

Benefits are paid either directly to the medical services provider or to the insured to refund the costs where these have been paid upfront, and generally will cover the costs of:

Accommodation, including meals

Nursing

Theatre fees

Drugs

Dressings

Doctors’ fees

Consultants’ fees

Anesthetists’ fees

Outpatient treatment

Diagnostic tests and investigations

Home nursing during recovery

Costs of parents staying in hospital with a young child

Minor surgery carried out by a GP

Chemotherapy, radiotherapy, etc.

Private ambulance

An ‘open referral’ system may be used; the patient’s GP refers them to a specialist but does not specify which specialist or hospital, rather, these are appointed by the insurer, often with the patient’s agreement.

Treatment is usually restricted to UK residents and does not include treatment outside of the UK. Treatment outside the UK may be covered under the terms of travel insurance.

PMI plans come in a variety of formats offering varying degrees of cover.

Exclusions

It is a feature of PMI that chronic conditions are excluded from cover or that cover is limited to acute conditions. While insurers use different definitions of “acute” and “chronic” the general intention is much the same. An example policy wording would be:

An acute condition - “This term is used to describe a condition of rapid onset, severe symptoms and brief duration. Examples of this will be appendicitis or tonsillitis. It may also include conditions resulting from chronic illnesses but which can be cured or substantially cured....

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 If available, a group scheme will provide access to PMI at lower cost.

 There is a wide range of choice available in the PMI market and with increasing costs and the short-term nature of PMI insurance, clients can be tempted to review the market place to look for a better deal.

Where changes are to be made it is vitally important to take the following into account: 

A new policy is likely to exclude all pre-existing conditions, even where treatment would have been provided under the previous policy

Existing conditions may be subject to a moratorium

Although there may be a saving on the premium, the cover is likely to be reduced

There is also a trend for new policies to make premium rates look attractive by offering larger excesses where the insured pays the first £1,000 to £5,000 of a claim.

Hospital cash plans can be perceived as a low cost alternative to PMI but have a simple structure, paying a cash sum for each night spent in a hospital.

PMI abroad

Unless specifically sold as international PMI policies, a policy arranged in the UK is unlikely to provide cover for treatment outside of the UK. If medical treatment is required whilst on a short trip abroad, cover will normally be provided under travel insurance, as will the costs of transfer to a nearby country if the standards of treatment in a particular country are considered to be sub-standard

For longer trips, of over a month, an alternative arrangement is required. For UK citizens arranging travel within the European Economic Area (EEA) cover can be partially provided through the Global Health Insurance Card (GHIC). The GHIC provides for treatment necessary whilst outside of the UK, in circumstances where the treatment cannot be delayed until return to the UK; for example, where an individual has to visit an A&E department or requires treatment for an existing condition. However, care for treatment is at the level provided to home nationals and not necessarily at UK NHS levels.

If an individual expects to spend a lot of time living or working abroad an international PMI policy is usually better suited as they provide a wider range of cover; such as GP services, treatment of chronic conditions and pregnancy / childbirth. The premiums are partly determined by reference to the areas the insured intends to travel to; for example, medical are very high in North America and premiums in respect of a PMI policy for someone who intended to travel there would reflect this.

What types of benefits are offered by a hospital cash plan?

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Those who are unable to work may be eligible for a Support for Mortgage Interest (SMI) Loan if they claim a qualifying State benefit for defined a minimum period; the minimum waiting period being 13 weeks (where a claim is triggered by receipt of Universal Credit) and 39 weeks in respect of most other qualifying benefits. Even if an SMI loan is paid, the benefit is limited to interest payments, and only respect of the first £200,000 of a mortgage.

MPPI means that an individual need not rely on State benefits to maintain their mortgage payments in the event that sickness, accident or unemployment means that they are unable to work.

An insurer may separate out the sickness/accident benefit from unemployment cover, offering each element separately

In the event of a claim, monthly benefits are usually payable for a limited period of 12, 18 or 24 months

The maximum benefit will vary between different insurers

- Typically this will be based on a percentage of t...

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Premiums paid to MPPI plans are subject to IPT

There is no tax relief on premiums paid

Benefits are paid tax-free

MPPI can no longer be sold at the same time as the loan.

Payment protection insurance (PPI)

This is similar to MPPI in terms of its basic purpose and structure. Rather than being used to provide protection in respect of a mortgage, PPI can be taken out to cover specific loans or other credit agreements. A form of PPI is often offered in conjunction with a store card or credit card, with cover restricted to the minimum payment required and for a period of 12 months

Many PPI policies were mis-sold, and banks have dealt with large numbers of complaints from customers, at a cost of billions of pounds in compensation.

Since 6th April 2012, PPI cannot be sold at the same time as a loan agreement is signed. It must be offered separately and the lender must wait seven days before doing so.

Despite the historic problems there remains a need for PPI and the product is still offered by some insurers.

What is the maximum benefit paid by a mortgage payment protection insurance plan?

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Typical features of an ASU plan are:

A monthly or weekly benefit payable if the insured is unable to work due to accident, sickness or unemployment

The benefit is payable for a maximum period of up to two years

There are deferred periods similar to those applying to MPPI policies and similar exc...

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Taxation – group policies

Employer paid premiums are a benefit in kind and subject to income tax

Employer paid premiums are a tax deductible business expense for the employer

In the event of a claim, benefits are free of tax

Where a claim is made on an ASU insurance policy, what is the maximum period over which income will be   paid?

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Simple, low-cost healthcare plans that pay up to 100% of the cost of treatment, up to defined limits, or contribute to the costs of dental / optical treatment

Can also pay a fixed cash sum for each day spent in hospital

Aims to cover costs up to defined limits

Once the policy commences, there is often an initial period of up to six months duri...

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Plans are subject to a maximum level of benefit, possibly at a level below that charged by the dentist for a particular treatment

Plans may be an optional feature of a PMI plan or arranged on a standalone basis, possibly as part of an employee benefits package

Each type of policy provides different but valuable benefits that are important within the context of individual financial plannin...

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List three disadvantages of short-term policies.

Policies are annually renewable

Can be terminated by the insurer

Shorter maximum benefit payment periods than those available under long-term policies

Lower maximum benefit levels

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