COMMENT:

Private health insurance is essential for some and a luxury for others.

Thanks to "free" healthcare from the government it is possible to live without it. You may not be seen instantly by the specialist of your choice, but in most cases you will be patched up eventually. But if you need a knee or hip replacement or want to skip the queue to see a specialist then private insurance can be very handy to have.

Given that the premiums can eat into your budget, how can you save a few dollars but still get cover when you need it? The number one tip from Russell Hutchinson, managing director of Chatswood Consulting Group, is to understand what you're buying and why.

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"Although personal preference, age and family may all play a part in your decision, the single biggest factors have to be income and budget," says Hutchinson.

"Do you have other things you should really spend the money on?"

Know your apples from your oranges

At one end of the insurance scale you can buy policies that simply cover the cost of doctor's visits and prescriptions. At the other end, it can give you access to extensive elective surgery and potentially revolutionary drugs not subsidised by Pharmac. When you understand what the policies do you can determine which policy fits your budget.

Take a bigger excess

The excess is the first part of any claim that you pay and the bigger the excess the lower the premium. Excesses range from nothing to thousands of dollars. The simple maths here is the higher your excess the lower your premium. The most common excess cost is between $250 and $500.

Southern Cross Health Society now offers excesses up to $4000, which can halve the premium for some people, says chief marketing officer Chris Watney. It also has a policy that pays 80 per cent of claims and you pay 20 per cent.

Start an emergency fund

With an emergency fund you can save the money you would have paid in premiums and fund your own private healthcare. Or you can save enough to cover a higher excess, which lower your premiums.

Get someone else to pay

Lots of employers offer discounted health insurance. More than 200,000 of Southern Cross' policies are employer subsidised. The more generous employers pay a greater portion or the entire premium and may include your partner and children under the policy. One significant advantage of work schemes is you can often get your pre-existing conditions covered, says Hutchinson.

Shop around

While people talk about their "Southern Cross" as a generic description for health insurance, there are others such as NIB, Accuro, UniMed and Sovereign. You can compare some policies on Lifedirect.co.nz. Canstarblue.co.nz offers ratings of the different providers.

Update your smoking status

If you've stopped smoking for 12 months for longer, you may be eligible for non-smoker rates. That would save you around 20 per cent with NIB, for example.

Reduce your risk

"Most people want to buy private medical cover because they care about the health of their family," says Hutchinson. "But you could buy private cover, and live an unhealthy life, and fail to meet your goal. Learning a bit about the health sector is also useful for you to be a good customer of health service, not just as a buyer of health insurance. That can make a difference to the value you get out of your next visit to your GP and even, to your life."

Southern Cross offers an introductory excess for customers who pass a healthy lifestyle test.

Pay by direct debit

You can save 4 per cent with NIB and 2.5 per cent with Southern Cross if you pay by direct debit. Most providers offer some sort of discount.

Disclose everything

Trying to hide something to get a cheaper premium will backfire come claim time.

My final tip is to consider visiting a financial adviser who specialises in this type of policy. A good one has dealt with someone just like you in the past and can make sensible suggestions. For example, if you're worried about the big one, rather than small claims, then you might be better off with "trauma" insurance cover, which pays out a lump sum if you fall ill with certain named conditions.