How Much Critical Illness Insurance Do I Need?

This article has everything you need to understand to answer yourself, “How much critical insurance do I need?”

Life-changing illness is more common than ever. A “critical illness” is not something you may pass away from. With medical advancements, we are able to endure and survive serious complications like heart attacks, stroke and cancer.

Critical illness insurance is also known as critical illness cover or a dread disease policy. It is basically an insurance contract in which the insurance carrier signs an agreement to make a handful of cash payments if the insured is diagnosed with a critical illness. However, there’s a limitation attached to the list of illnesses that are covered by critical illness insurance policy and to know how much critical insurance do I need, I must be aware of the terms and conditions too, right?

What illnesses are covered by critical illness insurance?

Illnesses that a critical illness insurance cover are as follows;

  • Heart attack.
  • Organ failure.
  • Multiple Sclerosis.
  • Alzheimer’s disease.
  • Parkinson’s disease.

If you have a critical illness insurance and God forbid you get diagnosed with one of the diseases above then you will be provided with a lump sum of money as per the critical illness insurance policies.

Planning your life is perhaps a good idea and opting for insurance will offer you support in unforeseen circumstances. Estimating how much you would need to live on if you catch a serious disease and whether you would need some extra financial sources to boost your income is a good way to plan out your life.

Critical illness insurance policies usually cover illnesses that require expensive treatment and procedures like cancer, heart attacks and strokes. However, these are just a few of the basic illnesses that form part of all critical illness insurance policies and may include optional add-on illnesses too. Other conditions that could fall under the same category are organ transplants and Parkinson’s disease.

There are two ways in which a critical illness insurance claim can be paid. One is that either it is paid from the date the medical condition is diagnosed or after a set number of days have passed after the diagnosis for example, 14 or 28 days. All of this depends on the policy terms.

Disadvantages of critical illness insurance

Everything that comes with pros bring along certain cons too and so is the case with critical illness insurance. The potential drawbacks of which are listed below and should be kept in mind before deciding on one;

  • Age restrictions
  • Premiums can be high
  • Some illnesses are not covered (exclusions) and coverage varies with each policy
  • You might need expert advice as some policies can be complex

Before signing an illness insurance policy, make sure that your advisors know what specific illnesses you want your insurance policy to cover and it shall help you find yourself the right cover. Adding certain illnesses might slightly increase your premiums but you’ll have insurance that will cover all your needs and would be sufficient for you. That will avoid the disappointment of being refused a pay-out for that condition.

Age restrictions despite, being less effective to most policyholders, are a potential drawback for a few. For instance, some insurance policies have an upper age limit of 74 and a maximum term of 50 years, with the policy ending when one of those limits is reached (whichever one is first).

At times claims do not get paid out due to reasons that should be kept in mind by the policyholder like;

  • A specific illness isn’t covered by the policy
  • The condition isn’t serious enough to warrant a pay-out
  • Illness is caused by using drugs or alcohol
  • Being untruthful and not disclosing information when applying for cover
  • Lack of medical documents

Critical illness insurance premium calculator

Critical insurance premium calculator devises the best possible cover for you. The total amount is multiplied and then further multiplied by the number of years that the insured expects to be paid up due to a critical illness. The minimum cover recommended would be at least 75% of the insured’s total monthly debt service payments.

Not all policies are created equal. Due to competitive pressures, policy terms may vary slightly between different insurance companies but the main benefit of having critical illness insurance is that it provides a lump-sum cash payment that you can use to pay for treatment or maintain financial stability if you are diagnosed with a critical illness. For minor illnesses, many insurers will offer a partial payout. Unlike health insurance benefits, you get to choose what you want to do with the money.

How much critical illness insurance do I need? Critical Illness Insurance provides an additional layer of protection that can be used in conjunction with other insurance policies or emergency savings you might have. The lump sum payment can be used to alleviate financial or household concerns during treatment, replace lost income or access medical treatments not covered by your other health insurance plan(s).

How does critical illness insurance work?

Critical illness insurance cover includes a tax-free lump sum payment if the insured is diagnosed with a defined critical illness during the policy term. Provided the insured keep paying their premiums, they shall be covered throughout the term. Once the policy term ends, all protection stops.

Anyone who is between the ages of 18 and 65 years and is a resident is eligible for this coverage. If the policyholder is between 18 and 55 years of age, and a resident, the policyholder is eligible to apply for this Return of Premium Option. The monthly premiums are based on the following factors such as age, gender and smoking status. The younger the policyholder is when he/she applies, the lower the premiums will be. Non- smokers enjoy up to 50% savings on their premium relatively to the person who smokes

Critical illness insurance covers an individual against illnesses such as heart attack, stroke and cancer and is sold in terms of 10 years, 20 years, to the age of 75 or the age of 100, with the option to lock in premiums. Policies can range from covering three medical conditions to as many as 24. They have a variety of riders, such as a return-of-premium rider; a second-event rider, which offers limited coverage if you are diagnosed with a second critical illness; a loss of independent existence rider; and a disability waiver-of-premium rider, which lets you off the hook for the premium if you’ve been totally disabled for 90 days.

When the insured takes out a policy they can decide how long it will last e.g. until their children have grown up, or until the mortgage is paid off.

This decision largely depends on what other types of protection or savings you have in place. If you’re a business owner who’s mostly hands-off or if you run a family business where other members can assist, you might not need as much insurance because you would not need to replace your income. However, most advisors will recommend purchasing insurance equal to 6 to 18 months of net income to pay for treatment and give you enough time off work to recover. How much critical illness insurance do I need? You should consider this type of insurance if you have no other insurance protection or when you start living independently and have some major expenses such as rent or a mortgage. If you’ve made the decision that purchasing critical illness insurance is the right move for you financially, we do recommend purchasing while you’re still young to lock in a lower premium for as long as you can. As with most things in the personal or health insurance arena, the younger you purchase, the cheaper it will be.

Critical illness cover is often available as a combined policy with term life insurance. In these instances, the insured can often only claim once.
For example, if the insured gets a cash payout after being diagnosed with cancer, the policy is effectively finished. There is usually no life insurance payout if the policyholder dies at a later date.

Is critical illness insurance worth it?

Your health insurance protects you from the sky-high prices of treatment, drugs, and hospital stays. But what covers your out-of-pocket expenses, your spouse’s time off work to care for you, or your own time off of work and travel to care for your sick child? That’s good, isn’t it?

Critical illness insurance helps the insured pay for treatments they can not afford. Imagine yourself in your late 60s and retired, would you have enough money to face you deteriorating health conditions (God forbid) financially? Or if not old age as illness has not much to do with age, it can show up anytime, would you be at peace spending all your earnings and savings on your medical treatment? That quite well explains the relevance of critical illness insurance in one’s life.

The lump-sum payment from critical illness insurance can pay for the unexpected expenses not covered by health or disability insurance. Americans will declare bankruptcy for medical reasons every year. This has been increasing steadily over the past 6 years.


No matter how much money you save or how much you earn monthly, it won’t be of much relevance if you do not strategically plan your life and expenses. What’s the use of earning tirelessly when all of it is going to end up in your doctor’s account? Hence, critical illness insurance is one of the smart ways in which you can secure your future and free your mind from stressful situations where you can neither afford losing your health nor your bank balance.

Therefore, plan your life and reach out to an advisor who shall help you opt for the best cover. Perhaps, now you know how does critical illness insurance work and consequently know that this insurance is just to secure your future and does not in any way mean to scare you or steal away your spark, leaving you worried about the future.

Eat healthy and maintain a balanced lifestyle to keep yourself a hundred miles away from all sorts of illnesses and leave all the worries behind. Last but not least, equip yourself with relevant information and choose the best insurance advisor so that you know the answer to the question, “How much critical illness insurance do I need?”

John Otero

John Otero

John Otero is an industry practitioner with more than 15 years of experience in the insurance industry. He has held various senior management roles both in the insurance companies and insurance brokers during this span of time. He began his insurance career in 2004 as an office assistant at an agency in her hometown of Duluth, MN. He got licensed as a producer while working at that agency and progressed to serve as an office manager. Working in the agency is how he fell in love with the industry. He saw firsthand the good that insurance consumers experienced by having the proper protection. John has diverse experience in corporate & consumer insurance services, across a range of vocations. His specialties include Major Corporate risk management and insurance programs, and Financial Lines He has been instrumental in making his firm as one of the leading organizations in the country in generating sustainable rapid growth of the company while maintaining service excellence to clients.

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