As state assistance continues to decline, it is increasingly important for consumers to understand their own needs for private health cover and to be able to pick out those products that are best suited to matching those needs.

Before you consider taking out any private insurance, think about what you have in place already to help you if you had to stop work as a result of illness or a long term disability. If you are an employee, your employer may run a decent sick- pay scheme, ask if it will pay you a reasonable income if you are forced through ill health to stop work or if you have an accident. If you are self-employed, the answer ought to be a private insurance scheme and you should have done something about it already.

Without these cushions, you are looking at the possibility of receiving only £48.80 a week in the form of State Incapacity Benefit.

Strictly speaking Health Insurance can be one of up to seven different types of products. It is easy to confuse the different types of insurance policies. Broadly speaking they are:

Private Medical Insurance (PMI) which covers medical treatment which is done privately, rather than through the NHS. It offers customers choice, comfort and convenience when you need medical treatment, but it may not provide cover for all health conditions.

Permanent Health Insurance (PHI) which will pay you an income if you are unable to work for an extended period of time because of illness, accident or disability. PHI may be costly but Which? Magazine recommends that it as the most important health insurance to consider.

Different companies use different terms to describe PHI, and although the terms may be different, they all mean much the same thing. Alternative names for PHI include income protection insurance, long-term disability insurance, income replacement insurance, disability income insurance and personal disability insurance.

Critical Illness Insurance (CII) which pays a tax- free lump sum if you suffer from one of a number of life- threatening specified, serious illnesses such as a heart attack or stroke, or if you have to undergo certain types of major surgery.

Accident Insurance will pay a tax-free lump sum on death or another specified payments if you suffer an injury that is covered in the policy which occurs as a result of an accident. The sums covered are pre-stated as is the nature of the injury required triggering the payout. These might include a loss of a sense or limb.

Hospital Cash Plans (HCP) will pay out to you a small tax-free cash sum when you receive hospital treatment. It can be helpful, but it will not cover all of your costs.

Long Term Care (LTC) which will pay the costs of residential or nursing home care for elderly people. The sum is paid for life and payment starts once you become severely mentally impaired.

Dental Plan pays out when you receive dental treatment, either covering the full cost or paying a set cash amount. It is a way of spreading the cost of treatment if you find it difficult to manage large or unexpected bills.