How to calculate the amount of Critical Illness Cover you need [A 3 minute guide]

Posted 11 November, 2020 by Clearly
in Stellar Guidance

Just like the 45th President of the United States, we’ve all been there.


Completely and utterly lost.


So yeah, that black thing over there is called a mike. You speak into it, not pop it into your mouth k.


How much Critical Illness Cover do I need? My colleague is covered for 200k, he says it’s just about right. My adviser says 500k is the minimum. My mother-in-law claims that the government will take care of me when I fall ill. So what really gives?


Unlike the 45th President of the United States, we can all be un-lost. Enlightened, even.

Leave the rumors and hearsay and gossip to the sentient orange peel, we work on a firm foundation of logic and common sense. In this article, we give you a sensible approach to calculating how much CI cover you actually need, so you can some concrete ground to stand on.

So toss away that MAGA cap and let’s get started.


Part 1: First things first (What you need to know)


The purpose of Critical illness cover

When serious illness befalls you, usually there is a period of time in which you might not be able to work (earn an income), while shelling out for treatment costs.

Critical illness coverage is meant to replace that lost income and also pay for your medical treatments so you can enjoy a full recovery.


So I am gonna make Mexico pay for my bills, just like I made them pay for the wall


The nature of Critical Illness cover

If you are diagnosed with a sufficiently severe degree of Critical illness (as defined by your insurer in the policy documents) you will get the entire stated payout, and you get to use the money however you see fit.

There are no other conditions to be met. (This contrasts with Hospitalization Cover, where the payouts are matched to the actual bills incurred, but that is a story for another day)


You can be eligible to claim for Critical Illness cover from more than 1 policy

Even if you bought policies that provide CI cover from multiple insurance companies, you can claim from every single one of them, as long as you meet their individual requirements for the severity of the illness (and type of illness).


Skepticism intensifies


Part 2: Calculate how much Critical Illness cover you need


First, gauge your level of kiasuism – how many years of recovery do you want to cater for?

This varies from person to person. Some of us are comfortable taking on more risk (planning on buying less cover), while others want to be absolutely sure that they will be taken care of, come hell or high water.


Kaisuism varies. Here we see a fully grown male specimen drinking out of a bottle with both hands


For reference, the median recovery period for the majority of critical illness patients is just beyond 4 years.

If you are confident in your healing abilities, perhaps 2-3 years would be sufficient. If you like having plenty of leeway, then up to 7 years of recovery isn’t unheard of. Personally, I think 5 years of recovery is ideal.


Next, figure out your average monthly income

For some, this is straightforward – their monthly salary is their sole source of income. For others with fluctuations in their earnings, or with multiple streams of income, this could be an exercise in diligence.

(simply figure out or estimate how much you earn in a year, then divide that amount by 12)


Nearly there: Work out the amount you need, and choose a plan (or plans) that provides the cover within your budget

For the sake of illustration, I am going to go with 5 years of recovery and a current monthly income of $6,000.

This means that your coverage requirement is $6k X 60 Months = $360,000.

That would be a great starting point of Critical illness cover for you to build upon. Then it’s time to ask: What sort of plan/plans might fit my needs or budget?


Can you spot the person thinking about her backup plans now?


You might consider having the coverage under a Whole Life Plan (with a relatively large premium size)

Or you might prefer using Term plans to address your needs (no frills, and only offers pure protection without any investment component)

There is also a case to be made for Standalone CI plans. (plans that just cover Critical Illnesses only) These often come with a slew of bells and whistles like multiple payouts, or paired up with Early Stage Critical illness cover.


Here’s where you work with your trusted Insurance professional on seeing how best to address this coverage need. He or she may even recommend that you spread the coverage across various policies.


That’s it! Now ride off into the sunset with your newfound information – and make sure you are adequately covered.


As Biden would say: Sui Sui bo zhao zui, Huat ah!


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