Private medical insurance (PMI) covers acute incidents but not chronic conditions. Appendicitis, heart attacks and road traffic accidents are sudden incidents which require a short-term intervention to enable the patient to recover. These are acute incidents. Arthritis and diabetes are slow in onset and long-term illnesses for which there is no cure. These are chronic conditions.

The benefits that private medical insurance can deliver are:

• Improved levels of service
• Reduced treatment delays
• A choice of facilities
• Access to a limited range of alternative therapies

PMI covers or contributes towards the cost of care provided by the private healthcare sector. Although the costs of specific medical procedures are generally known in advance it is difficult for both the policyholder and the insurer to predict when a medical condition will arise and how serious it will be. PMI enables those insured to swap this unpredictability for a premium payment.Premiums charged for cover will usually depend on the age, health and previous claims experience of the applicant. This is known as 'individual rating'.

Many medical insurance policies are taken out by employers for the benefit of their staff on a 'group scheme' basis. For larger groups the premium will be based on the claims experience of the whole scheme rather than the age and claims experience of each person within the group. This is known as 'group rating'. However it does not cover emergencies.