Critical Illness Insurance: How Much Coverage Do I Need?
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Life is unpredictable, and unexpected health challenges can disrupt your financial stability. That’s where critical illness insurance steps in – providing a financial cushion during times of medical crisis.
However, a key question arises: How much critical illness insurance do you need? In this blog post, we’ll guide you through the process of determining the right coverage amount to ensure your peace of mind and protect your financial well-being.
What is Critical Illness (CI) Insurance?
Critical illness insurance is a specialised type of coverage that offers a lump-sum payout if you’re diagnosed with a covered critical illness. This payout can be used to cover medical expenses, replace lost income, and help you maintain your quality of life during recovery.
Life Insurance Association (LIA) Singapore has standardised definitions for 37 severe stage critical illnesses. These definitions are used by all the life insurance companies in Singapore.
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How much CI cover do I need?
Determining the appropriate amount of critical illness coverage involves evaluating various factors that influence your financial responsibilities and priorities. Here are the factors:
Current Financial Obligations
Start by considering your current financial commitments. This includes mortgages, loans, credit card debt, and ongoing bills. Your critical illness insurance coverage should be sufficient to help cover these obligations if you’re unable to work due to a critical illness.
Income Replacement
Calculate how much income you would need if you were unable to work during your recovery. The payout from critical illness insurance can help supplement lost income and maintain your standard of living.
Lifestyle and Family Support
Consider your family’s lifestyle and support needs. If you have dependents, your coverage should account for their financial well-being and future needs, such as education costs.
Medical Expenses
Medical treatments, procedures, and medications can come with hefty price tags. Factor in potential medical expenses not covered by your health insurance when calculating your coverage needs.
If you do not have an Integrated Shield Plan, I would recommend getting this as your top priority.
Current Resources
Additionally, it’s important to consider your existing insurance coverage and the availability of emergency funds that you can utilise in case of a critical illness. If you are unsure of the amount of critical illness (CI) cover you currently have, it is a good idea to create a table of your insurance policies. You can download a template for this here.
Critical Illness Insurance Calculator
We have developed this critical illness calculator to assist you in establishing your optimal sum assured.
CI Calculator
Determine the right amount of critical illness coverage
for your current financial situation
How Much Early Critical Illness (ECI) Cover Do I Need?
Early critical illness insurance is a type of insurance that provides a lump sum payout if you are diagnosed with a critical illness in its early stages. This can help you to cover the costs of treatment and other expenses, such as lost income.
A good rule of thumb is to have early critical illness cover that is equal to 1-3 times your annual income. However, you may need more or less cover depending on your individual circumstances.
Is Early Critical Illness (ECI) Insurance Worth It?
Early critical illness insurance can be a worthwhile investment for people who are concerned about the financial impact of a critical illness. The lump sum payout can help to cover the costs of treatment, lost income, and other expenses.
However, it is important to note that early critical illness insurance is not a guarantee of financial security. The payout may not be enough to cover all of your expenses, and you may still have to borrow money or dip into your savings.
Ultimately, the decision of whether or not to buy early critical illness insurance is a personal one. If you are concerned about the financial impact of a critical illness, it may be a good investment for you.
Aditional Tips
Here are some additional tips for choosing critical illness cover:
Shop around
Compare quotes from different insurers to get the best deal. You can compare quotes from multiple insurers here at term.sg with just 1 click.
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Read the fine print
Make sure you understand the terms and conditions of the policy before you buy it. Unlike severe stage Critical Illness cover, ECI definitions are not standardised throughout the various insurers. Don’t just go for the cheapest quote!
Get covered early
It is beneficial to get critical illness cover when you are young and healthy. This is because premiums are typically lower for younger people, and they are also less likely to be declined for coverage. Here are more reasons why it is important to get critical illness cover early
Review your policy regularly
Your needs may change over time, so it is important to review your policy regularly to make sure it still meets your needs.
Critical illness cover can provide peace of mind in the event of a serious illness. By considering your individual needs and taking the time to choose the right policy, you can ensure that you are financially protected in the event of a critical illness.
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Conclusion
Determining how much critical illness insurance you need involves a thoughtful evaluation of your financial obligations, lifestyle, and potential future expenses. The goal is to strike a balance between protecting your financial well-being and maintaining a realistic premium.
Remember, every individual’s circumstances are different, so there’s no one-size-fits-all answer. By taking the time to assess your needs and seeking expert advice, you can ensure that your critical illness coverage provides the necessary safety net for you and your loved ones.
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Leon Lim (Indra Julie)
Leon is a Certified Financial Planner with over 15 years of experience in the finance industry. Leon is passionate about helping PMEBs (Professionals, Managers, Executives, and Business Owners) achieve their retirement goals and attain financial freedom.
