04/06/2021

5 mins

Where an owner or director with company paid Medical Insurance is made redundant, a company may arrange a Health Insurance continuation scheme, where it continues to fund cover for them on a personal level when they leave work.

This can be an arrangement of 12 months, or in some cases more, depending on the nature of the policy and the company involved. This approach often extends to companies that employ a partnership structure – we often deals with senior accountants and lawyers who were partners in their firms before they left.

Unfortunately, for more than 90% of people covered by Business Health Insurance, their cover just stops when they leave, retire or are made redundant. This means they have to find their own cover and this is where problems arise.

What Underwriting Options Do You Have For Personal Cover?

Many larger companies have medical history disregarded (MHD) Health Insurance, which means there’s no individual underwriting and that scheme members enjoy complete coverage.

This is the best Health Insurance underwriting for the policyholder, but it’s only available for group schemes of a certain size.

Individuals can only have this cover if they’ve been part of an MHD scheme already and are going forward with a continuing policy on those terms. However, if you are looking for a continuation scheme on an individual basis, the cost of private medical insurance with the MHD underwriting maintained will usually be hugely expensive.

As an individual, the cost of private medical insurance written on an MHD honoured basis is likely to be around double the premiums the company was paying – far more than most of us can afford.

Nadeem Farid
Head of Employee Benefits at Drewberry

For most people, the only affordable alternative is to take out a new individual Health Insurance policy on a new underwriting basis.

Choosing full medical underwriting (FMU) means you’ll need to submit a health declaration to your new PMI insurer. This means that you won’t get cover for conditions for which you’ve previously received treatment.

However, if you’re generally in good health and can safely say you haven’t suffered any medical conditions over the previous five years, you can choose to take out cover on a ‘new moratorium’ basis, which means you won’t need a health declaration.

Even so, if you have pre-existing conditions, you’ll still need to complete a two-year period from when the policy starts where you don’t receive any medical advice or treatment for that condition before you’ll be eligible to claim for that particular condition.

Adjusting Your Cover Can Achieve Cheaper Health Insurance Premiums

To complicate matters, underwriting isn’t the only factor to consider when looking for a continuation scheme. Typically, company schemes tend to offer ‘all singing, all dancing’ cover. But this is something that’s far too expensive for the majority of us, so be ready to compromise on what Health Insurance covers.

martyn coates, employee benefits consultant at drewberry

The most important consideration for those seeking continuation cover is to act fast.

If there’s more than a 30-day break between policies, most insurers will decline cover on continued underwriting terms, leaving you with no option but to be re-underwritten from scratch.

Martyn Coates
Employee Benefits Adviser at Drewberry

To continue any form of underwriting from your group scheme – at least initially – it’s better to stay with the same insurer when you leave your employer.

The time limit isn’t such a problem for those who might be retiring or working their notice, but for those who are made redundant it can be a major headache. They tend to get relatively little notice before finding themselves out of work and with no private medical insurance.

This means they have some tough choices to make. Not least because the cost of private medical insurance will probably go up due to them having to pay two months’ premiums at the outset as they’ll need to pay the back premiums even if the policy wasn’t used – remember when seeking a continuation policy, there can’t be any break in cover.

Continuing Health Insurance Into Retirement

Although retirees usually have the luxury of having more time to sort out their new Health Insurance than those made redundant, they face an uphill struggle as they’re obviously older when they come to find cover.

The average age of members of group company schemes tends to be between 35 and 45. However, around 40% of the individual PMI market is aged over 65 and, according to insurers, 98% of the average 60-year-old’s premiums are spent on claims.

This helps explain why the cost of private medical insurance individual cover is generally twice as much as group cover.

It’s also a fact that individuals tend to claim on their policies far more often than group members. The mindset here is no doubt linked to ‘getting your money’s worth’, but, in reality, making small claims will just pump up the premium when it comes to renewal.

How To Reduce The Cost Of Health Insurance After Retirement

For most people, the best approach will be to look at options like adding an excess to your policy.

This can help reduce premiums by up to 20%. Adding a six-week option will also bring the cost of private medical insurance down, as will removing non-core options such as therapy or outpatient benefits.

If you manage to go up to five years without making a claim then you’re in a position to switch between providers, which could also significantly reduce your premiums.

This means that securing PMI cover in later life can often be a two stage process: the first stage is to secure affordable cover; the second stage is to review your cover options at each renewal.

With luck, if you’ve avoided making a claim, you’ll be in a position to increase your cover or, eventually, reduce your premiums (by switching provider).

Adding an excess can lower the cost of Medical Insurance

Medical Insurance can be a lot like car insurance, as it all comes down to protecting your ‘no claims bonus’. This can mean self-funding for smaller claims also becomes an option as paying for a specific treatment yourself can save your premiums from being hiked down the road.

It can also be worth looking at friendly society-style policies from providers such as The Exeter or Freedom. They may be more expensive at the start but it means you get some premium stability.

The big attraction of this is that the cost of private medical insurance doesn’t rise due to claims experience – although premiums will rise with age. It can also be worth a married couple applying for cover from different providers to get the best deal.

Overall, there are plenty of options when it comes to health insurance for older people, but it means deciding what’s most important, setting a price ceiling and managing your claims appropriately.