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How Much Critical Illness Insurance Cover do you Need?
YES! Everybody needs it. Don’t ever think that you will be healthy all the time. Unfortunately, for now, human health deteriorates over time.
If you suffered a major illness and had a critical illness policy, you would be able to obtain a lump sum payment that would allow you to get much needed financial help with recuperation, medical costs, payment of your mortgage and other bills.
Before we go in depth, you must understand that critical illness insurance is totally different from hospitalization and surgical coverage (most widely known as health insurance or major medical insurance). Here is the layman explanation:
Critical illness insurance pays you directly in one lump sum
Medical Insurance pays the medical expenses incurred during your hospitalization, and usually pays directly to a doctor or hospital, not you. ( in some cases, if you paid for the medical care yourself, the insurance company may pay you directly)
So now the question is, how much coverage do you need? There are two popular methods for calculating the sum you require to meet your current financial needs. The first method is a very simple income based calculation. The second one is a bit more complicated.
First Method: Income Replacement Calculation
For most critical illnesses, it takes from several months to several years for treatment and recovery. From industry benchmarks, most people need a policy that will cover 2 years of current annual income.
Amount of insurance you need = 2 times your annual income
Example: Paul earn $50,000 a year, he should purchase a $100,000 critical illness plan.
You might be curious to know why a 2 year income was selected? Actually, it is simple. The average length of treatment for most serious diseases is two years. With cancer and kidney disease taking the longest on average. Of course each case will be different as everyone has different needs. If you do not have any major medical insurance or you would rather use alternative medical treatment (holistic medicine and such), then a higher amount of coverage may be recommended. the maximum available is now $500,000 per policy. If you select one of our No exam critical illness insurance plans, then the maximum available is $50,000.
Second Method: Expenses Estimation
This method is a bit more complex as you will need to specify or estimate the expenses you need if you are stricken by one of the dreaded diseases. For example:
Paul’s monthly expenses:
1. Mortgage – $1500/month
2.Car installment – $600/month
3.Daily expenses (food, cloths, grocery etc) – $1000/month
4.Medication – $500/month
Total monthly expenses for Paul is $3600. You would have to estimate the number of years it takes to recover from an illness. This may be a bit difficult. Cancer might need 1-3 years. Kidney failure – will never recover (with today's conventional medical methods). Coronary by-pass surgery 3-6 months after successful surgery. It all depends on how long you want to rest and stop working! Let’s say Paul require at least 2 years off.
Amount of insurance required = Monthly expenses estimated x 12 x number of years
Amount of insurance required = $3600 x 12 x 2 = $86,400
Either method of calculation may work well. We find that the income replacement method is, usually, more accurate and certainly the easiest to use. The type of illness that may concern you most (maybe because of family history) may be a strong factor in your decision as some illnesses require much longer treatment time than others.
Of course, we are here to help you decide. Always feel free to ask as many questions as you need to. As always, all our policies come with a 30 day free look period with NO obligation. You can just request a quote or call us at 866-855-2338.
