Today, the risk of developing a critical illness is higher than ever. Serious health conditions like cancer, heart attacks, and strokes are becoming all too common. They don’t just impact your health – they can also wreak havoc on your finances. The costs associated with treating critical illnesses can be staggering – not just immediate medical expenses but also long-term care, rehabilitation, and lifestyle adjustments. Without a proper safety net, these costs can quickly drain your savings and jeopardise your family’s financial stability.
Health insurance is a vital shield against the unpredictability of medical emergencies. It covers a broad range of medical expenses, ensuring that you can access necessary treatments without worrying about immediate costs. But here’s the catch: while health insurance is essential, it may not cover all the expenses associated with critical illnesses such as cancer, heart attack unless specified in the policy. This is where “Critical Illness Insurance” steps in to add an extra layer of protection.
Having critical illness insurance is crucial, but it’s just as important to make sure you have the right amount of coverage. In this blog, we’ll discuss how much critical illness cover you should buy to keep your financial future secure and ensure your family’s well-being during tough times. Let’s dive in!
What Is A Critical Illness?
A critical illness is a serious health condition that significantly impacts a person’s well-being and requires immediate medical treatment. Here are some of the common critical illnesses:
- Cancer
- Heart attack
- Aorta graft surgery
- Heart valve surgery
- Primary pulmonary arterial hypertension
- Kidney failure
- Coma
- Stroke
- Paralysis
- Multiple sclerosis
These conditions aren’t just severe; they necessitate prompt and intensive treatment, making them far more expensive than regular medical issues.
What Is Critical Illness Insurance?
Critical illness insurance is there to have your back if you’re ever diagnosed with a serious health condition. Instead of stressing about how to cover the costs, this insurance gives you a lump sum payment to handle a variety of medical expenses, including long-term care and essential medical equipment.
If you’re the main breadwinner for your family, this lump sum can be a real lifesaver. It can help cover everyday expenses like loan payments, household bills, and your kids’ school fees, making sure your family’s financial needs are met even if you’re unable to work. Plus, if you need to seek treatment abroad, you can use the money for that too. In short, critical illness insurance not only helps with medical costs but also provides a financial safety net for your family when times get tough.
Why Should You Buy Critical Illness Insurance?
Dealing with a critical illness can be incredibly costly and financially draining. That’s where critical illness insurance comes in. It provides essential financial support and helps protect your savings from being wiped out.
You can use the money from this insurance however you need. It can help make up for lost income, cover rehabilitation costs, or take care of other expenses like transportation. The best part is, you get the payout as soon as you’re diagnosed with a covered illness. In some cases, the payout can be based on the stage of the condition as well. After that, the policy ends, but you’ve got the funds you need to help you through a tough time.
How Much Cover Should You Buy?
If you’re the main breadwinner for your family, dealing with a critical illness can be financially devastating because of the long-term medical costs involved. In many cases, these expenses can end up being higher than the costs associated withdeath. That’s why it’s so important to have critical illness insurance that matches your term insurance amount.
Here’s a quick and easy way to figure out the right amount of coverage you need. And if you can’t get that full amount, aim for the highest coverage you can afford. This will help ensure your family stays financially secure, no matter what happens.
Calculating Your Critical Illness Cover
To determine the amount of critical illness cover you need, consider the following:
Living Expenses Fund
This fund ensures your family can maintain their current lifestyle, covering:
- Rent payments
- Groceries and monthly supplies
- Monthly utility bills
Excluding EMI for a self-occupied house
Major Expenses Fund
This fund handles significant, expected costs, including:
- Education expenses for your spouse and children
- Costs for weddings and celebrations
Major Liabilities Fund
This fund pays off any loans and liabilities, such as:
- Home loan repayments
- Other large loan repayments
- Guarantees on business or personal loans
Existing Funds
Evaluate your existing funds, considering risk factors:
- Savings in cash and fixed deposits (FDs)
- Equity investments
- Gold and residential property
- Stock options and high-risk investments
Formula
Critical Illness Cover Required = Living Expenses Fund + Major Expenses Fund + Major Liabilities Fund – Existing Funds
Let’s take a fresh look at Ravi, a 35-year-old software engineer earning ₹25 lakhs per year. His wife, Sonal, is a homemaker, and they have a 3-year-old child.
Current Financial Situation:
- Monthly Living Expenses: ₹90,000 (excluding loan EMIs)
- Liabilities:
- Home Loan: ₹85 lakhs
- Car Loan: ₹10 lakhs
Expected Future Expenses:
- Child’s Higher Education (15 years from now): ₹60 lakhs
- Child’s Wedding (20 years from now): ₹55 lakhs
Existing Financial Assets:
- Savings: ₹7 lakhs
- Mutual Funds: ₹45 lakhs
- Fixed Deposits: ₹6 lakhs
- Gold: ₹6 lakhs
- House (market value): ₹1.5 crores
Calculation of Financial Liabilities:
- Living Expense Fund:
(₹ 90,000 per month × 12) ÷ 3% = ₹ 3.6 Crores
This amount ensures that his family can cover living expenses for many years, assuming a conservative interest rate of 3%.
- Major Future Expenses:
Child’s Education (₹ 60L) + Child’s Wedding (₹ 55L) = ₹ 1.15 Crores
- Liabilities:
Home Loan (₹ 85L)+Car Loan (₹ 10L) = ₹ 95 Lakhs
- Total Liabilities
(sum of living expenses, future expenses, and current loans): ₹ 3.6 Crores (Living Expenses) + ₹ 1.15 Crores (Future Expenses)+ ₹ 95 Lakhs (Liabilities) = ₹ 5.1 Crores
Calculation of Existing Financial Assets:
- Liquid Funds (Savings + FDs): ₹ 7 Lakhs + ₹ 6 Lakhs = ₹ 13 Lakhs
- Mutual Funds (calculated at 50% of current value): ₹ 45 Lakhs × 50% = ₹ 22.5 Lakhs
- Non-Liquid Assets (Gold, House): Valued at 0% for this calculation to account for lack of immediate liquidity: ₹ 1.5 Crores (House) × 0% = ₹ 0
- Total Available Assets: ₹ 13 Lakhs (Savings + FDs) + ₹ 22.5 Lakhs (Mutual Funds) = ₹ 35.5 Lakhs
Critical Illness Cover Calculation:
To determine the critical illness cover required, we subtract his existing assets from his total liabilities:
Critical Illness Cover Required = Total Liabilities − Available Assets
= ₹ 5.1 Crores − ₹ 35.5 Lakhs = ₹ 4.755 Crores
Ravi would need a critical illness cover of approximately ₹4.76 Crores to ensure that his family can cover all future financial obligations, including liabilities and living expenses, in case of any health emergencies.
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Meet CoverPro, Your Personal Risk Analyzer
CoverPro is your go-to tool for finding the perfect critical illness cover. It evaluates all the essential details and offers personalized recommendations just for you. Whether you’re aiming to safeguard your family’s future or ensure you’re prepared for any health emergencies, CoverSure has your back. We eliminate the guesswork, giving you peace of mind knowing you’re adequately protected. Say goodbye to confusion and hello to confidence with CoverSure.
