Private medical insurance (PMI), also known as private health insurance, allows you to pay for private medical care if you would rather not wait for treatment on the NHS. Some policies allow you to choose when, where and by which specialist you are treated. In addition, PMI typically pays for a well-furnished private room if your treatment requires a hospital stay.

The insurance lasts for a year at a time, but provided you keep up-to-date with the payments, most insurers will automatically renew the policy each year - although premiums may increase at renewal. If and when you need treatment, provided the illness is covered the policy pays out.

If you are determined to avoid the NHS, the alternative to taking out this kind of cover is to use your savings or income to meet the bills for private treatment.

What is covered?

PMI pays for the private treatment of "acute" conditions, which means illnesses that are short term and curable - provided they were unforeseen at the time you took out the policy. Although there may be a cap on the amount you can claim in each category, policies will usually pay out for:

· fees charged by private medical staff for both diagnosis and treatment

· operating expenses, including surgeons', anaesthetists' and operating theatre fees

· accommodation and nursing charges

· x-rays, dressings and medication while an inpatient

· specialist treatment such as radiotherapy, chemotherapy and physiotherapy

· home nursing costs, outpatient and day care treatment if linked to treatment received as an inpatient

If you are prepared to pay a higher premium, you can get a policy that also provides cover for:

· cash payments if you stay in hospital as an NHS patient (rather than claiming on the policy)

· outpatient tests and treatment not linked to an inpatient stay

· emergency medical treatment while travelling abroad

What isn't covered?

Because private medical insurance covers the unforeseen, you will not be able to get cover for an illness you developed shortly before taking out the policy or for the recurrence of a recent illness, known as a "pre-existing medical condition".

No policy will cover all your medical needs and the following are almost certain to be excluded:

· routine check-ups from a GP, dentist or optician

· A&E treatment

· incurable or chronic conditions, including the terminal stages of cancer

· long-term illnesses such as asthma, diabetes and multiple sclerosis

· normal pregnancy and childbirth

· cosmetic surgery

· preventative medicine

· treatment needed because of self-inflicted harm, including drug or alcohol abuse

· treatment needed as a result of pursuing a dangerous sport

Buying PMI

What you pay for PMI depends on your age, sex, health and where you live. The more comprehensive the cover offered by a policy the higher the premiums.

Before buying PMI, first check whether your employer offers it as a perk, as this will be a lot cheaper than buying a policy yourself. If not, you can still cut costs if you are prepared to:

· increase the policy excess, which means you contribute more towards the cost of your medical bills yourself

· restrict your choice of hospitals to those nominated by your insurer

· get treatment on the NHS if it's available without too long a wait, for example within six to 12 weeks

· opt for only limited cover and pay for other treatments yourself

Because policies vary widely in the cover they offer, the best way to buy PMI is through an independent financial adviser.

Although any vendor must explain the cover provided by (and limitations of) a policy, only an independent adviser can trawl through all the policies on the market to find one to meet both your circumstances and your budget.

Making a claim

For a claim on a PMI policy to be valid it must begin with a referral by a GP to a specialist. At this point you should check with your insurer that your illness is covered by your policy, and if it is you must get a claim form.

Both your GP and the specialist will need to fill in and sign the form, for which your GP may make a small charge. Your insurer will then be able to tell you how much of the cost of treatment, including tests and so on, the policy will meet. Your insurer should also tell you whether it will meet your medical bills directly or if you will be required to pay them and claim the money back at a later date.