How much critical illness insurance cover do I need?
You can look at insurance as an umbrella. It covers you and keeps you warm and dry. Umbrellas vary in size, but you want an umbrella that will provide you with sufficient protection when the rainy days come. Of course, when that happens, you’ll be happier when you’re equipped with a wider umbrella (with some rain boots on your feet) rather than a skimpy parasol!
Critical illness insurance ensures that you have the funds you need at a difficult time. With today’s advanced medical technologies, there is an increased chance that one can recover and be well after going through a serious illness. The survival rates are ever increasing. According to Cancer Research UK, the overall survival rate for all cancers is 50%. Breast cancer survivors lasting 5 years have reached an all-time high of 82% (England only).
- Top 5 reasons why a critical illness claim is denied
- Do critical illness insurers really pay out: what the statistics shows
- Top 10 critical illnesses that will pay out
- When are you suspected to get critically ill?
The good news is that your chances of surviving a serious illness are high. The bad news is, you will need money to survive and get the treatment you need.
Counting the Cost of a Critical Illness
Here are some links to help give you an idea of how much a critical illness can cost you:
- The cost of having a major organ transplant
- The cost of caring for a person with Alzheimer’s Disease
- The cost of cancer treatments
Life insurance will not be enough.
If you only have life insurance, while you are alive and are in dire need of cash, you have these options:
- To surrender the life insurance policy and get the cash value.
- To claim for the terminal illness benefit. But this is only if the person is reasonably not expected to survive the illness in twelve months. This is also only if the terminal illness benefit is included in the cover.
Critical illness insurance can provide a big lump sum for treatment.
A critical illness insurance policy is a necessity if you are concerned about getting a grave illness in the future. And the fact we have to consider is that even children suffer from serious illnesses.
So how much of a critical illness umbrella do you need? If you have a little critical illness insurance, that’s better than nothing. But you will have to scrimp and save to make ends meet. More sadly, if you are not insured and get critically ill, you may have to face the possibility of selling your assets or even foreclosing on your house.
How much critical illness cover do I need? Calculating your CI Sum Insured
Here are some simple tips to help you determine how much critical illness insurance you need:
Calculate how much income you will need.
One benchmark is to multiply your annual income by three. This is because when you get critically ill, you may need to stop working. Multiplying by three means you can afford to rest from work for up to three years and still be able to pay your usual bills and mortgage payments.
One major consideration is to think about how long your dependents will be relying on your income. If getting a college education is part of the plan, how much and how long will your children need you as their provider? How many more years before your children become financially independent?
Calculate how much expenses you will need.
Add up your monthly expenses such as rental or mortgage payments, car instalments, food, transportation, groceries, medication and home care. You can add this up and then deduct expected income from other sources, such as your spouse, Social Security and so on. Multiply the total amount and then multiply this by the number of years you expect to be laid up due to a serious illness.
The minimum cover recommended would be at least 75% of your total monthly debt service payments.
Buying Critical Illness Insurance
Some questions you also need to consider when you are choosing your critical illness coverage:
Add in expected medical expenses.
To the above amounts you computed, you should also add how much you expect to spend in medical bills in case you do get critically ill. This includes expenses you may need for home care, as well as equipping your home with adaptive or medical equipment necessary for your recovery.
Consider your savings and liquid assets.
How much savings do you currently have? Do you have further assets you can easily convert to cash (such as investments or deposit accounts) in case of an emergency? How will this help cover the cost of treatment, as well as your family’s needs? You may deduct this from the total amount of critical illness cover you need. Or, you can keep this intact as an additional financial safeguard.
How much state benefits do you stand to get?
There are allowances and pensions paid for disabled persons and their carers. This is provided on a weekly basis. Know more: Critical Illness Insurance and State Benefits
The amount you get will be roughly the equivalent of the sum assured you should get, if you can afford this.
Other factors to look into would be:
- If there are other members of your family who are earning an income
- If there are expected increases in expense in the near future (such as your child going off to college)
- The size of your debt, such as your mortgage and the length of time you will be paying this off
- The amount you need to pay each month in order to service your debts. Consider the amount of your outstanding mortgage balance and other high-ticket debts.
- Will you need to provide for childcare costs for an extended period of time, if ever you become critically ill? Full time child care can cost £20,000 annually, higher if you reside in London. Are there loved ones and friends who can pitch in and help with the childcare/housekeeping needs of your family?
- Rate of increase of related costs. How much will costs increase over time? One good benchmark would be the National Average Earnings, which points at an annual 4% growth to calculate childcare and other labour costs.
- Your budget for premiums. Of course, this is an important consideration. It is also unadvisable to get a high level of critical illness cover which you actually cannot afford. The policy may just end up being cancelled due to lack of payments.
Last updated on: 18.1.2013
Recommended useful information to read:
- Dos and Don’ts when making critical illness insurance claims
- What you should know about your critical illness cover: the exclusions to your policy
- Things to consider before getting a critical illness insurance policy
- Are you at risk? Critical illnesses you may be susceptible to
- Save up on premiums: factors that affect your critical illness insurance premiums