Ensuring an extra element of care

Jane Suiter weighs insurance options that will cover medical support in the later years

IF YOU ARE coming up to retirement, looking after your health will be a priority. It is a fact of life that, as you get older, you are more prone to illness, and with cutbacks in the NHS and long waiting lists, no one can be sure of receiving treatment when needed.

Of course, should you develop cancer or suffer a stroke, the health service will still be there for you. But older people needing hip replacements, or treatment for cataracts or varicose veins, often have to wait up to a year. Private medical insurance is quicker, and possibly better. The Government has recognised this by giving tax relief on premiums for private medical insurance to anyone over 60.

But as the risk of becoming ill increases, the cost also goes up. Many may find it more economical to take out "budget" cover, which will pay out only if the NHS waiting list is six weeks or longer. PMI pays out for almost all stays in hospital and for many out-patient visits.

The level of cover varies according to the type of hospital you will attend. The big London teaching hospitals attract an "A" rating and are the most expensive, while smaller country hospitals may be "D"-rated.

But some companies, including Norwich Union and Sun Alliance, band customers according to address. So, if you live in London, you will pay the most expensive premiums, whereas if you live in South Wales, it will be far cheaper.

Although all companies will continue to pay if you have taken out cover before 60 or 65, some refuse to take on someone who applies at this time.

A person aged between 60 and 64 can expect to pay pounds 35 a month for a low- cost plan with Norwich Union or Bupa and pounds 23 with Prime Health. For top- of-the-range plans this jumps to pounds 157 with Norwich Union , pounds 153 with Bupa and pounds 161 with PPP.

An even greater worry to many people is what they will do once they are no longer able to look after themselves. But you can insure against the possibility of being bedridden and alone or with a family who cannot cope. This type of insurance is called long-term care. It will pay for care in a nursing or retirement home or even for a nurse to attend you in your own home.

Since the Community Care Act came into force in 1993, anyone with assets of more than pounds 8,000 (and that includes the value of the home) is no longer eligible for any assistance should they be unable to cope alone. They, or their families, must pay.

Cover is available in two ways. It can be bought when needed, perhaps with the proceeds of selling a house or with part of the lump sum provided by a pension. Or it can be planned for through a regular savings plan. This usually finances the payment of a lump sum to the insurance company which will pay your nursing home bills.

The main players in this market are Commercial Union, PPP Lifetime, Prime Health and Scottish Amicable European. All of these plans simply cover you for the risk of needing care and do not have any value if you should surrender them or die, except Scottish Amicable. It pays for itself by taking the payments for the insurance out of the growth in an investment bond.

These plans are also quite tax-efficient as your money grows untouched and is paid directly to the care provider without the Inland Revenue taking an interest. The premiums themselves, however, are not tax-deductible.

All the plans pay out according to how disabled you are. But there are important differences between the companies, and it is important to check the small print. Commercial Union and PPP will both pay out half your benefit for lesser degrees of disability, which mean you can stay at home.

You can also choose whether to have cheaper cover, which only pays out for institutional care, or the more expensive version, which will provide a nurse at home or even a mixture of the two. Another way to cut costs is to opt for cover that only lasts a few years. In America the average length of a claim is three years, and 95 per cent of claims last less than five years. However, this would be cold comfort for anyone who needed the cover for longer.

Premiums go up with age and are usually higher for women. A 55-year-old man will pay pounds 54 a month for basic cover through Commercial Union for a pounds 1,000-a-month benefit; a woman the same age will pay pounds 77. Prime Health does not distinguish by gender and could therefore work out cheaper. A Scottish Amicable plan would cost the same man pounds 14 a month and a woman pounds 16, but these premiums apply only for the first year and increase in later years.

The second type of plan is the "middle care" version These are suitable for anyone who needs care now. The companies offering these plans include Commercial Union, Eagle Star and PPP Lifetime.

These plans usually pay fees directly to the nursing home and negotiate with it to set fee increases.