SAGA — Doing things properly

Middle England's money disasters

Flick through the money sections of the papers and you'll find yourself assaulted with pages of horror stories of middle England's money disasters, writes Merryn Somerset Webb

Houses have burnt down, taking 20 years worth of possessions with them. Pets have received thousand pound medical bills. Teenagers have been airlifted off ski slopes at a cost of £20,000 to their irate parents. Wedding photographers have dropped their cameras tripping over electrical leads left untaped outside marquees. A harassed mum has had her wallet stolen and been defrauded out of thousands of pounds as a result.

And the thing all these stories have in common? They're all placed as 'case studies' by insurance policy providers to exemplify the wide range of awful things that can happen to you and to persuade you to buy rather more insurance policies than might be strictly necessary.

It's a tactic that works pretty well - insurance is near the top of most of our financial shopping lists. Sometimes this is fine - but not all insurances are as vital as the industry would like us to think.

Take medical insurance. All the papers are now so often filled with horror stories about the dreadful state of the NHS that most of us are completely convinced that we must have it.

But is it really true? The insurance providers (and those earning commission from them) would have us believe that it's verging on the irresponsible not to be covered but I'm not sure I'm convinced.

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; it very often doesn't cover chronic or incurable illnesses such as diabetes, asthma or multiple sclerosis; it doesn't cover pallative care; and most insurers will refuse to pay for drugs that have already been deemed too expensive by the NHS.

Private medical insurance is also utterly useless in an emergency: private hospitals don't have emergency rooms or the capacity to deal with emergencies. Turn up on Harley Street with a broken leg and you'll be immediately dispatched to St Mary's Paddington.

Finally, 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 already before I was able to claim on it. It also gets more and more expensive as you get older (and more likely to have things wrong with you).

With all this in mind you might want to wonder if having insurance - when you already pay huge taxes to finance what is supposed to be a free at point of delivery NHS - is really worth it.

If you don't get it free through your office I suspect it might not be. You could instead figure out how much you would save by not buying it and put that money in a designated savings account to use as and when you need it. 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 (as long as you remember to bring along your own cleaning equipment and keep nagging the doctors and your visitors to keep washing their hands).

I've had nothing but good experiences with the NHS over the last four or five years and it is accepted by many that in emergencies and in the care of people with serious or terminal illnesses the organisation does pretty good 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 have long been the ones at the cutting edge of healthcare in the UK.

Where the NHS sometimes (but far from always) falls down is on the treatment of acute but curable conditions, but if you are saving you should be able to pay for this yourself if you feel you need to. Note that 80% of non acute 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 the procedures that you probably won't need until you are heading for your fifties and sixties (hip replacements, for example) by which time your 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.

All these operations can also be had in the likes of India and Thailand for a fraction of the price. Finally, note 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.

You can also get policies that only pay up if the NHS waiting list for what you need is longer than six weeks, or which cut the cost by restricting the list of hospitals at which you can be treated.

Seems to me then that if you must have health insurance the best thing to do is to check all the best buy tables and find the best policy for you and then to go to all the cashback sites and see if they have the same policy on offer at the same price and with cashback: if they do it is, as the FT says, a no-lose situation.

* Merryn Somerset Webb writes about investment every month for Saga Magazine and is the editor of Moneyweek.