Should you add Critical Illness Cover to your life insurance?
If so, how much should you add? It’s a difficult question. No one likes to think about contracting a serious illness, or how it will affect our loved ones.
However, it’s something we need to face up to. Illness can strike at any time. Every two minutes in the UK, someone receives a diagnosis of cancer 1. Purchasing Critical Illness Cover could be a valuable addition to your insurance portfolio.
Do I need Critical Illness Cover?
It might be that you don’t need Critical Illness Cover at this point in your life. You can work out whether Critical Illness Cover will help you by asking yourself two questions. If you became ill and couldn’t work for a long stretch of time:
- Would you or your family struggle to live without your income?
- If necessary, could you pay the costs of your recovery, such as private treatment, travel and care?
If the answer to these is ‘yes’, you should consider adding Critical Illness Cover to your life insurance.
It may be that you have enough in savings to see you through difficult times, or you have a partner that can support you. Perhaps your employer offers you long-term sickness benefit as part of your contract? In these instances, you may not need Critical Illness Cover.
Most people, however, find Critical Illness Cover brings peace of mind. Then, if the worst happens, it proves its value.
How to calculate your Critical Illness Cover
You decide that you need Critical Illness Cover, but how do you work out how much coverage you need?
The key is your income. If you became ill and couldn’t work, how much would you need to survive until you could start earning again? The tricky part is you don’t know how long it would take you to recover, or when you could go back to work. You may only need a week or two. On the other hand, you may not be able to return to work at all.
The average time breast cancer patients take off work is six months 2. Heart attack patients return to work after a period between two weeks and three months, depending on how severe the attack was 3.
Remember to expect the best but plan for the worst. When calculating how much cover you need, consider these three factors.
For most people, your mortgage is your largest monthly outgoing. It lasts for a significant chunk of your life, around 25 years. Plus, if you fall behind on your payments, you risk losing your house. For these reasons, you must consider how you would pay your mortgage if you were unable to work because of illness.
If you couldn’t work for six months, for example, how much money would you need?
Critical Illness Cover is an addition to your life insurance. You can take it as part of your Mortgage Repayment life insurance cover. If you take Critical Illness Cover in this way, the amount of cover and the amount you pay for it decreases over time. This is because the amount you owe on your mortgage reduces as you pay it off.
If you have other debts on top of your mortgage, such as loans, remember to budget for them as well.
If you are in the UK, healthcare is free on the NHS. You will not have to pay for treatment and medication. However, there will be other costs that you will have to pay as you recover.
The price of travelling to the hospital or doctor soon adds up. What if you have to make alterations to your home to make life easier for you? What if you need professional care?
These things all cost money. Will you be able to meet these costs without a regular income?
Make sure you consider these factors.
Think about the life you live right now. Think about the things you spend money on, whether they’re luxuries like holidays and TV subscriptions or necessities like food and heating.
If you lost your income due to illness, what would you still have to buy?
It’s not just you either. Think about your dependents. If you have children, you still have to support them as you recover.
Make sure you consider these costs as you calculate how much Critical Illness Cover you need.
How to add Critical Illness Cover to your life insurance
If you need Critical Illness Cover, a good rule of thumb is to buy the same amount as your life insurance.
You can choose the amount of your Critical Illness lump sum up to 50% of the amount of cover in your life insurance. So, the simplest way to do it is to think about the amount of Critical Illness Cover you need, double it, and buy that amount in life insurance.
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1 – “Cancer Incidence Statistics.” Cancer Research UK, 13 Feb. 2018, www.cancerresearchuk.org/health-professional/cancer-statistics/incidence#heading-Zero.
2 – Drolet, Mélanie, et al. “Work Absence after Breast Cancer Diagnosis: a Population-Based Study.” CMAJ : Canadian Medical Association Journal = Journal De L’Association Medicale Canadienne, Canadian Medical Association, 27 Sept. 2005, www.ncbi.nlm.nih.gov/pmc/articles/PMC1216317/.
3 – “Heart Attack Recovery FAQs.” Www.heart.org, www.heart.org/en/health-topics/heart-attack/life-after-a-heart-attack/heart-attack-recovery-faqs.