How Much Critical Illness Cover Do I Need

We often find ourselves having daydreams about buying nice things and living a financially secure life with millions of dollars coming from a lottery that we just won. 

In reality, we depend on a regular income that we earn from our jobs or small businesses. This income covers our kitchen expenses, utility bills, and helps us maintain our lifestyle. 

God forbid, if we lose this regular income, we would get into a very difficult position. That’s why we need critical illness or income protection insurance to cover us if we ever have to face a situation. 

Critical Illness Cover

A lump sum of tax-free money that you are paid by an insurance company upon falling ill is what we call critical insurance cover. Your insurer of this insurance policy will define serious illness and decide which illnesses qualify for payment and which do not. 

However, cancer and heart disease are some of the illnesses that are accepted by almost every insurance company for critical illness payout. The policy benefit will be paid only when you satisfy the survival period, as insurers require the beneficiary to survive a definite period of time specified in the respective policy. They may also require you to fulfill additional terms & conditions and requirements for availing this insurance policy. 

Purchasing a critical illness cover is the best option if you want to continuously support your dependents even when your illness doesn’t allow you to work. Moreover, the policy can also cover you for paying your mortgage debt, and other major expenses, such as house maintenance, etc. In fact, you can spend this lump sum amount for any purpose. 

Some people, who don’t have private medical insurance, use the critical illness payout to get specialist private medical treatment. 

Income Protection Insurance 

Contrary to critical illness cover, you don’t get paid a lump sum amount under income protection insurance. Instead, your insurer pays you an amount equivalent to your income regularly. 

To claim this policy, you don’t need to specify any critical illness or disease. You can get the payout nearly for any reason that doesn’t allow you to work. For example, you can be eligible for the payout if you are unable to work due to an accident, back pain, or stress. 

You might be thinking that this insurance policy is better than critical illness cover, as you will be getting an amount regularly if you fall critically ill. However, the major difference between the two policies is lump sum money. 

Critical health cover pays you lump sum money, which you can use to pay off a mortgage debt or to bear the expenses of private medical treatment. On the other hand, income protection insurance will not provide you with lump sum money that you can use to finance large expenses or to make heavy repayments. 

Also, an income protection policy will pay you about 70% of your monthly income each month. These payouts will stop when you get recovered from the illness and are ready to rejoin your work. Some income protection policies will pay you out regularly until your retirement, then it will stop. 

Critical illness or Income Protection?

Many of us have to pick either critical illness or income protection insurance due to our limited budget.

You know that anyone can fall critically ill anytime, even if they don’t smoke or drink. As in the case of my wife who was struck by a brain hemorrhage when she was just a 30-year-old healthy woman. 

The intention is not to fright or make you worry. But to sensitize you that hiding your head in the ground like an ostrich won’t avert the possible untoward situation. You need to think over and devise a plan that could back you if something like this ever happens to you. In this case, comprehensive critical illness cover can be your savior. 

You should also consider another factor while deciding what to choose, critical illness or income protection. Your illness can severely affect your regular income, as you will have to take sick leaves from your work. The illness will also cause you additional health expenses. 

In this case, a critical health cover would be proven more beneficial than income protection insurance, as health issues often bar people from continuously earning their regular income. Besides, health is wealth. So, your verdict for critical illness or income protection insurance should favor the latter option. 

If you are married with kids, getting your children’s critical illness cover is of great consequence, too. Your child’s illness can disturb you both financially and mentally. The same is the case with your spouse, if he/she isn’t covered, purchase a critical illness policy for them, too. 

How Much Critical Illness Cover do I Need?

The value of critical illness cover largely depends on certain factors including your age, lifestyle, debts owed, your job and income, job and income of your spouse, etc. You can use quick online calculators to estimate how much critical illness cover you need. 

For that, you will have to calculate all your financial needs and expenses that you want to be covered by the insurer while paying you out the lump sum money. They will decide how much lump sum money you will need. 

Let’s suppose that you want to cover your expenses for at least six months with the lump sum critical illness cover, you will have to calculate the following expenses: 

  • Loss of income your own income
  • Loss of income from your spouse’s job 
  • Mortgage or Rent
  • Credit Card Payments
  • Loan and Other Repayments
  • Domestic Help
  • Home Modifications 
  • Medical Equipment
  • Miscellaneous (transportation, parking, etc.)

It is recommended that you should carefully calculate how much coverage amount you want before purchasing any policy. 

If you still have any confusion about what to choose from critical illness cover and income protection insurance, or how much critical illness cover you need, you can contact us to get professional guidance from our insurance specialists. 

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