Critical illness insurance is a special type of coverage that protects your finances against critical illness like cancer, heart attack, or stroke. This insurance serves you right if you are diagnosed with any critical illness that affects your quality of life, employment and requires continuous medical treatment.

In India, critical illness insurance is becoming increasingly popular due to the rising healthcare costs and the high incidence of critical illnesses in the country. This insurance can help cover medical expenses, lost income, and other related costs during the treatment and recovery process.

This blog aims to provide readers with guidance on how to assess their critical illness insurance needs and determine the appropriate coverage amount. 

How to Calculate How Much Critical Illness Insurance Coverage do you Require?

When considering the amount of critical illness cover, there are several factors to take into account. Recovery from a critical illness can be a long process, which may require extended periods of follow-up treatment and rest. To ensure that you have adequate coverage, it’s important to consider the following factors:

  • Medical expenses: Expenses related to medical treatment such as treatment costs, medication prices, nursing charges, doctors’ fees, and diagnostic test costs should be considered for the recovery period to ensure adequate coverage.
  • Family’s monthly expenses: In the event of a critical illness diagnosis, you may need to stop working to focus on your health. As such, it’s important to consider your family’s monthly expenses and ensure that the basic needs of your family are met.
  • Financial liabilities: If you have an outstanding loan or financial commitment, it’s essential to consider how a critical illness diagnosis might impact your ability to meet these obligations.
  • Inflation: Over time, the cost of medical treatment and other expenses will likely increase due to inflation. As such, it’s important to consider this factor and ensure that you have adequate coverage to account for potential future increases in costs.

Calculating sum for critical illness insurance

The income replacement approach is a common method of calculating the required sum for critical illness insurance by multiplying annual income by the number of years required for recovery. However, you should note that this method may not be suitable for everyone, and it’s crucial to consider individual needs and circumstances when determining the appropriate coverage amount.

To illustrate, let’s say that you’re a 40-year-old individual who earns an annual income of Rs. 10 lakhs. You want to ensure that you have adequate coverage in case of a critical illness diagnosis, so you decide to use the income replacement method to calculate the required sum for critical illness policy. You estimate that it would take you five years to fully recover from a critical illness and return to work.

Using the income replacement method, you would calculate the required sum as follows:

Annual income: Rs. 10 lakhs

Number of years of income to replace: 5 years

Required sum = Annual income x Number of years of income to replace = Rs. 10 lakhs x 5 years = Rs. 50 lakhs

So, in this example, the required sum for critical illness insurance would be Rs. 50 lakhs. This amount would provide coverage for five years of lost income due to a critical illness diagnosis.

It’s important to note that this example is only for illustrative purposes, and individuals should consult with a financial advisor or insurance professional to determine the appropriate coverage amount for their specific needs.

In conclusion, critical illness insurance is a crucial financial safety net that can provide much-needed financial protection in the event of a critical illness diagnosis. When selecting critical illness policy coverage, it’s important to consider factors such as medical expenses, family expenses, financial liabilities, and inflation to determine the appropriate coverage amount. Additionally, individuals should review their coverage periodically to ensure that it continues to meet their changing needs. So, don’t wait any longer, secure your financial future with a critical illness policy today.