How Much Critical Illness Cover Do I Need?

If you have been considering critical illness cover, you may have been asking yourself: “how much cover do I need?” Well, the answer is different for everyone. Here are some of the things you should consider to get the right level of cover for your financial security.

How much would you need to survive if you lost your income?

Being diagnosed with a critical illness normally means being unable to work while you receive treatment and recover. Potentially you may be unable to work again, or at least not in the capacity you could previous to the illness. That may be an uncomfortable prospect to think about. But it’s a necessary starting point when you are considering how much critical illness cover you need.

For example, think analytically about the following questions:

• Would you still be able to generate income while you were ill?
• Would you have to make alterations to your home due to your illness?
• Would you have to pay for private treatment or for carers to help you during your recovery?

It’s all about making sure you have the right lump sum available. Not just to free up initial capital, but to ensure you have ongoing access to funds to cover your overheads and support your loved ones while you are receiving treatment.

Here are some key areas to consider.

Monthly debt repayments

Sometimes it can feel like your life grinds to a standstill when you become seriously ill. Unfortunately the world around you keeps spinning. And that means your monthly debt repayments still need to be serviced – such as your mortgage, loan repayments and credit card bills. If possible calculate the amount left to pay on each of your debts, as well as the monthly cost of servicing those debts.

Other overheads

Consider how much you need for additional expenses such as TV and internet, groceries and utility bills. You may also want to think about the potential cost of private medical expenses, aftercare or the cost of travelling to receive treatment.

Dependants

Do you have children or relatives that are financially dependent on you? Then you need to factor in the money they will need to continue living their current life as well as how long they are expected to be financially dependent on you.

Subtract income and savings

You may have savings that would provide a cushion in the event of you becoming seriously ill. Likewise you may be in a position where you will still receive income while you are undergoing treatment, for example if you receive passive income for things like investments, or from your employer. Subtract your savings, potential income and any state benefits that you may become entitled to from the amount of critical illness cover you require.

Don’t forget about inflation

Don’t forget that you may have your critical illness cover in place for several years. That means it’s worth considering how inflation may affect your lump sum should you fall ill. For example, £100,000 may seem like plenty of money if you became ill today. But if you came to claim in fifteen years, that lump sum would most likely have far less purchasing power. An easy way to alleviate rising inflation is to look for critical illness cover that offsets inflation with an indexation option.

Thinking about the future isn’t easy

Planning your finances in the event of something unexpected isn’t easy. And there are some tough questions to ask. That’s why it can help to sit down with an independent financial adviser to consider your options. Here at Prydis we merge a unique blend of tax, accounting and wealth management expertise to help our clients plan their futures confidently. And because we are totally independent, we have access to a full range of financial products and are focused on helping you to find the best outcomes for your personal circumstances.

Get in touch for an informal discussion about how we could help you.