Pain relief - cut your health insurance bill

Prepare to vote with your feet when your annual bill for private medical insurance arrives.

Customers are exchanging policies in their droves as soaring medical inflation pushes premiums up by as much as 10%.

Steve Walker, director of broker Medical Insurance Services, says: 'Most people don't want to get rid of private healthcare altogether, but they can't afford the huge premium hikes.'

Standard Life is launching a lowercost, menu-driven Personal Healthcare plan in July.

Tesco also has a new menu-based plan. These plans cover core treatments and allow customers to add the extras they want (such as outpatient treatment) and the cost depends on this.

But there are other ways of avoiding the increases. National Deposit Friendly Society's Healthcare Deposit Account says it will allow customers to fix their premiums for life.

It aims to do this by having a mix- and-match of savings account and insurance.

Half the monthly premium goes into a savings account with the society which pays no interest, but is used as the pot to help fund healthcare.

The other half is used to buy a pre-set amount of medical insurance.

Monthly premiums are set at between £20 and £200 a month per individual - though the minimum is £50 a month for the over-50s. Someone choosing to pay £50 a month could buy up to £30,000 worth of medical cover and £900 dental and optical cover a year.

The key here is that when you make a claim, part of the money comes from the cash fund and the bulk from the insurance.

However, this is not full medical insurance and the size of the claim depends in part on how much the customer has contributed to date. In the early years the size of claims are limited.

However, it is possible to get around this by paying a £10-a-month insurance top-up which will allow bigger claims to be made.

How do the costs compare with full medical insurance? Someone aged 55, who paid the basic £50 a month plus £10 a month top-up (total £60), could get similar cover for £61 a month for BCWA Personal Health, but would have to pay £15.32 a month to add dental cover. But while this gives unlimited comprehensive medical cover, customers would face annual increases in premiums.

>>If you need to cut medical costs:

• Ask your existing provider what options are available to lower costs. You may be able to agree to pay a bigger excess or move down a tier. If you do reduce cover, make sure you have the option to move back up without needing new underwriting.

• Explore the competition. Make sure they will take you on 'no worse terms' so all the conditions that were covered by your older insurer continue to be covered.