Paying a lump sum for surgery

A CASH PAYMENT if you need an operation leaves you free to pay for private treatment or to pocket the money, writes Vivien Goldsmith.

The policy that delivers this choice was launched by Equitable Life at the end of last year, but the insurer has only just started to market it widely.

The novel feature of the plan, the Major Medical Cash Plan, is that policyholders pay into the insurer's with-profits or unit-linked funds monthly. If they choose the minimum level, the cover should last 10 years. But if they choose the maximum level, the cover should last a lifetime. However, all depends on the performance of the investments.

In the early years, a surplus should build up to more than cover the premiums for the medical policy. This is then used to fund higher premiums in later life.

A 35-year-old man, for instance, can pay a minimum of pounds 12 and a maximum of pounds 19 per month to aim for lifetime cover. A woman of the same age has a single option of pounds 25 as the risk of her making a claim is higher.

The amount paid out for different surgical procedures will be reviewed frequently with the aim of keeping the payments broadly in line with the cost of having the operations performed privately.

A big operation such as a coronary by-pass results in a payout of pounds 14,000, a hip replacement pounds 7,000, a hysterectomy or prostate operation pounds 3,500, and a minor operation such as having tonsils, appendix or cataracts removed pounds 1,400.

Pregnancy complications, cosmetic surgery, contraception, dental work and varicose vein procedures are excluded.

The plan can be cashed in at any time, and any surplus from the investment part taken as cash. Higher-rate taxpayers will have a tax liability.

PPP, the medical fees insurer, runs a personal equity plan that aims to generate tax-free cash to pay the annual premiums. Investors get a 5 per cent discount off medical cover and pay a 2 per cent initial charge on the PEP.

Investors with a shortfall are given the option of writing a cheque to make up the difference or withdrawing capital. But they are advised that this will make it harder and harder for the plan to provide the full premiums in future.