How to determine your critical illness protection level?
A critical illness plan can pay for your treatment when a disease strikes, and cover living expenses for you and your family. But to ensure you’ll have an adequate protection level, learn the basics first.
Is there a formula for calculating protection level?
Some people have put forward the notion that the protection level of your critical illness policy should be around 2-3 times your annual salary. But this hypothesises only a partial income loss while you are convalescing because of a serious illness. The lump sum benefit from your critical illness plan is assumed in this scenario to be enough for covering living expenses for you and your family while you are undergoing treatment and working less. The cost of treatment for a critical illness, however, is only the tip of the iceberg. The expenses of a long convalescence plus the financial impact on your family are in fact the biggest worries.
3 main factors for estimating the protection level you need
1. Which age group are you in?
People have different protection needs. For young people, the key consideration may be the possibility of a premium return if they stay healthy. In addition, the majority would hope to make good use of their money, paying only a few of premiums and still enjoying a larger protection level. The table below shows the typical protection level and rate of return for different age groups.
2. Do you have other insurance protection or medical coverage?
A typical medical insurance policy can serve as the basis of your health protection If you already have a Voluntary Health Insurance Plan or a Group Medical Plan that reimburses you for actual medical expenses, you may have adequate medical coverage. The lower the medical cost you need to pay, the lower the protection level for your critical illness plan needs to be.
3. What is your financial burden?
Critical illnesses, such as cancer, require long recovery times, usually up to 2-3 years. During this period, there is a significant chance that you will be unable to work and yet you will need to handle your living expense at the same time that you manage your medical costs. Therefore, you should consider the following points:
- Critical illness treatment costs
- Caregiver cost
- Daily living expenses
- Children’s school fees and related financial burdens
Even though more items covered doesn’t necessarily mean higher premiums, we still need to be mindful of whether the scope of coverage is broad enough. There are critical illness insurance plans on the market that cover:
Common critical illnesses + extended coverage for conditions that result beyond the causes of critical illnesses,
eg, terminal illness, total permanent disability, loss of independent existence and major medical treatment = safety net against undiscovered new diseases and physical injuries.
Case study
Now that you have a better understanding of the threat of critical illness, take a look at the below example for more clarity when you’re working out the protection amount you need.
Different life stages call for different protections. That is especially true of critical illness insurance. That’s why there are critical illness plans on the market with a 10-year policy term, with protection level ranges from HKD100,000 to HKD2,500,000, and those that may return 101% of the total premiums paid to give different customers more flexibility in meeting their wealth management needs. If you are thinking about buying an insurance policy, make sure it’s the right one for you. That will let you get the most out of it. Finally, some critical illness plans currently on the market only need to go through simplified underwriting. All you need is to answer 5 simple health questions and no medical examination is required. Application is simple and easy.