While in the UK we’re lucky to have access to quality healthcare that’s free at the point of use, private medical insurance can give you added piece of mind.
On the NHS, delays are unfortunately common. And, when you’re a self-employed contractor, being off work sick for a long time while you wait for treatment means you may miss opportunities and lose out on income.
But how do you pick the right private medical insurance?
And what’s the most tax-efficient way to pay for it when you’re a contractor?
What is private medical insurance?
Private medical insurance covers your costs if you decide to get treated privately instead of going through the NHS. You pay a fee, called a premium, either each month or once a year. If you get sick, you make a claim and the policy will pay your doctor’s fees and other medical expenses.
There are three main types of private medical insurance cover:
- Inpatient cover, which pays out when you need a hospital stay
- Outpatient cover, which covers appointments, diagnostic tests, and other treatments and procedures that don’t require a hospital stay
- Day patient cover, which covers regular appointments and tests
What does private medical insurance cover?
What your policy will pay for depends on the type and level of cover you choose.
At one end of the spectrum, your policy might only cover hospital stays. And the cheapest policies will have payout limits, which means they’ll only pay your costs up to a certain amount.
At the other end of the spectrum, more comprehensive (and, obviously, more expensive) policies can cover routine check ups, diagnostic tests, dental treatment, mental health support, and other specialist treatments, with no payout caps.
That said, regardless of the type of policy and level of cover, private medical insurance typically covers acute conditions only. These are conditions that appear suddenly and worsen quickly, such as an infection.
The following aren’t usually covered:
- Chronic conditions, that is conditions that develop over time and need to be managed for the rest of your life, such as diabetes or arthritis
- Emergency treatment — here, you’ll need to go to A&E
- Treatment for alcohol and drug abuse
- Cosmetic surgery, fertility treatment, and other non-essential treatments
- Pregnancy and childbirth
What about pre-existing conditions?
Whether pre-existing conditions — illnesses you had before you bought private medical insurance — are covered, depends on the type of policy you buy.
Policies that use what is called moratorium underwriting cover pre-existing conditions if you haven’t experienced symptoms or sought treatment for a certain number of years.
Let’s say you buy a policy with a five-year moratorium. You hurt your knee.
When you claim, the insurer will need to find out:
- If this is the first time you’ve ever hurt your knee
- If you’ve hurt your knee before, whether you sought treatment any time in the last five years
If you haven’t sought any treatment in the last five years, the policy will pay. Same with any other conditions you haven’t sought treatment for in the last five years. The flipside is that it takes longer to process your claims, because your insurer will need to establish if what you’re sick with falls within the moratorium period every single time.
Alternatively, if you choose a policy with full medical underwriting, the insurer will examine your medical history in detail before you buy the policy.
In this kind of policy, pre-existing conditions will never be covered. On the bright side, your claims will be processed more quickly, because the insurer will already know exactly what you are and aren’t covered for.
Why buy private medical insurance?
Private medical insurance has three main benefits:
- Faster treatment
- Greater flexibility
- More choice
In comparison, you can get treated privately much more quickly. Most private medical insurance plans, for instance, offer access to virtual GP consultations, so you can see a doctor straight away. Similarly, you can book diagnostic tests within days.
This means you can get better and go back to work sooner.
Where the NHS typically allocates you an appointment, when you’re treated privately you can choose the time that best suits you.
You also get to choose the most conveniently-located hospital or clinic, and you’re likely to be treated by the same GP or specialist throughout.
Private healthcare gives you access to drugs and other advanced treatment options that might not be available on the NHS.
Many private hospitals also have hotel-like surroundings. You can get your own private room with an en suite bathroom, home comforts like TV, and a broader menu with better food.
How to choose private medical insurance: 3 things to consider to keep costs manageable
While private medical insurance gives you more choice and access to faster, more convenient treatment, it costs a pretty penny. According to price comparison site Active Quote, the average premium is £1,435 a year — around £120 a month.
The good news is that there are ways to keep costs down, without compromising the quality of your cover.
Here are three things to consider.
1. How much cover do you need?
Do you want the most comprehensive cover possible? Or are you only looking to cover some types of treatment?
Needless to say, the more comprehensive your policy is, the more expensive the premium will be.
Private medical insurance isn’t — nor can it be — a replacement for the NHS. No policy covers everything. And NHS hospitals are better equipped to deal with certain cases.
Stuart Scullion, of the Association of Medical Insurers and Intermediaries puts it this way:
“The private sector is at its best for elective surgery, like a hip replacement. If it’s an accident or emergency, like a road accident or heart attack, there is no doubt in my mind at all that the best place for you to go is an NHS A&E.”
With this in mind, it’s worth having a think about what cover you actually need. Getting a policy that only covers in-patient treatment, or treatment that isn’t available on the NHS, can shave hundreds off your premium.
2. How much excess are you willing to pay?
The excess is the amount you have to pay out of your own pocket before your cover kicks in.
Unlike other types of insurance, where you pay an excess every time you claim, in private medical insurance you typically pay the excess only once per year.
This means that, if you’re young and fit, a large excess probably won’t be good value. A higher excess becomes more worthwhile as you get older and, so, it starts getting more likely that you’ll claim multiple times a year.
That said, there’s a certain point at which your excess will be so high it outweighs any saving you make on your policy.
3. How much choice do you want?
Do you want a long list of hospitals and clinics to choose from? Or are you happy with less choice?
It might feel like you’re limiting yourself. But the truth is that, unless you travel continually, a policy that covers fewer hospitals — all of which are close to home — should be more than enough.
It’s also worth noting that many hospitals billed as “premium” are located in London. If you live outside London and are unlikely to travel for care, paying extra for access to these hospitals isn’t good value.
Similarly, you can slash your premium by choosing a “directional” or “guided” policy. Here, you either have a smaller list of consultants to choose from, or the insurer chooses one for you.
What’s the most tax-efficient way to pay for private medical insurance?
Alongside the three tips we’ve just covered, there’s also a fourth — and often overlooked — factor that affects cost: how you pay for it.
As a contractor, you can pay for private medical insurance in one of two ways:
- Through your limited company
- From your personal funds
You won’t be surprised to hear that, in either scenario, there’s going to be an impact on your tax bill. So, paying in the most tax-efficient way possible will help you keep it as affordable as possible.
For your limited company, the insurance premium is an allowable expense, which means you’ll pay less corporation tax.
The flipside is that it would count as a benefit-in-kind, because it benefits you and your family personally. As a result, you’ll have to pay income tax on it at your marginal rate (the highest tax band you fall in).
The risk here is that the premium could tip your income over into a higher rate. And if it’s £100,000 a year or over, your personal allowance will decrease by £1 for every £2.
Your company will also have to pay employers’ national insurance and file a P11D form at the end of each year.
By contrast, there’s no benefit-in-kind if you pay for your private medical insurance personally.
That said, you’ll need to meet the cost from your taxable income. And if you take a larger salary or dividend to cover the premium, you’ll still end up paying more tax.
So which method is more tax-efficient?
The short answer is: it depends.
If you typically withdraw just enough to live on and leave most of your earnings in your company, paying benefit-in-kind tax may make sense.
But if you take a large salary or withdraw all your profits as dividends, it may work out cheaper to pay for your insurance from your personal funds.
It’s best to chat to your accountant about this, so they can advise you based on your financial situation.
If you’re a self-employed contractor, private medical insurance can give you the added security of access to faster treatment at a time of your choosing, plus treatment that might not be available on the NHS. The trade-off is that not everything is covered, and you’ll also need to pay for the privilege.
Thinking carefully about what cover you really need and shopping around can help you keep costs down.
That said, here’s one final piece of advice.
Unlike other types of insurance, it rarely pays to switch your private medical insurance provider. This is because:
- Any conditions your current policy has paid for won’t be covered by your new insurer (or you’ll need to wait a few years, if you choose a moratorium policy)
- As you grow older, you’re regarded as a bigger risk, so it’ll become harder to find a cheaper deal than the one you already have
The upshot is that you’ll probably be dealing with your private medical insurance provider for a long time. So a reputation for great service is just as important as how much you’re paying.
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