Being diagnosed with a critical illness or condition is always going to be a tough one to think about, but it’s one of those things we shouldn’t shy away from. Especially as the chances of an unfortunate diagnosis are much higher, for people of working age, than dying – and the financial ramifications can be more significant than you’d expect. This is why critical illness cover is an important kind of protection to have, if you can afford it.

In this Macmillan research report – Cancer’s Hidden Price Tag: Revealing the costs behind the illnesses – it was found that four in five people end up £570 a month worse-off after being diagnosed with cancer, as household income goes down and outgoings go up. It’s working people under the age of 60 who are most likely to face financial hardship after a diagnosis because they tend to already have higher expenses, thanks to things like mortgages and dependent children.

This is where critical illness cover can help, making sure a diagnosis won’t have too significant or long-lasting a financial impact on you and the people in your household. But working out how much you need isn’t always easy – plus it depends on how protected you want to be or, conversely, how much risk you’re willing to live with. Being able to afford the monthly premiums plays a part too.

Reminder: what’s critical illness insurance for?

Critical illness cover is designed to provide a financial cushion if you’re diagnosed with a critical illness or condition. Many insurers offer this product because it’s well-known that critical diagnoses can often have a significant financial impact on households. Potential reasons being:

  • You need time off work, for physical or mental health reasons
  • Another breadwinner needs time off to support your recovery
  • Home alterations are needed as a result of your illness/condition
  • Unexpected medical costs, travel expenses, or needing to pay for care

How to work out: if you need critical illness cover

Since a critical diagnosis can bring with it unexpected financial consequences, whether or not you need it depends on your personal circumstances in this regard. Namely: what financial commitments you have, whether or not anyone else depends on you having an income, and how significant (or catastrophic) the financial impact of a diagnosis could be for you. There’s a few things you can think about to help make your decision:

  • How would being unable to work affect you financially? Would you and your household be able to keep up with the cost of life?
  • Do you have a partner or children who rely on you financially?
  • If you were unable to work because of a critical illness, are there any expenses you could temporarily cut back on to alleviate financial pressure?
  • Do you have any savings or other assets you could fall back on to support yourself financially during treatment and recovery? And would you want to use them?
  • Do you already have critical illness cover through your employer? Is it sufficient? And if you were to change jobs, would you still want to be covered?
  • How do you think you’d react to a critical illness diagnosis? Even if you could keep working, would you want to take some time off for yourself, or to spend with loved ones?

How to work out: how much critical illness cover you need

One common way of working this out is simply by calculating your household’s monthly expenses and what the shortfall would be if you were unable to work, then multiplying that by the amount of time you’d want to be supported for if you were critically ill (e.g. a number of months or years). Similarly, you could choose to cover your income (assuming it’d be temporarily lost if you became ill), also multiplied by an amount of time. Either of these would give you the lump sum amount you want to cover.

Obviously there are some unknowns when trying to work this out – like what the diagnosis could be and what costs it could bring with it – but there are also lots of knowns which you can use to help make a calculated decision. These include:

  • Your monthly outgoings now, including essentials like rent/mortgage, bills, and food
  • Your monthly outgoings in the future, as far as you can estimate – e.g. do you plan to pay university fees for your child(ren)? Or do you have debts that will be paid off soon?
  • How much you want to cover the potential costs associated with treatment and recovery, in case you became critically ill
  • How much you want to cover the cost of potential home alterations needed after being diagnosed with a critical condition
  • How much you have in savings or other assets that you could use to offset your need for critical illness cover

With any kind of insurance, it’s also worth bearing in mind that your needs might change over time – they could go up, down, or stay the same. What you’d need to cover in terms of monthly expenses if you claimed in 5 years’ time, for example, might be different to what you’d need if you claimed in 20 years’ time. This all needs factoring in when choosing what kind of cover to go for.

When it comes to critical illness cover, our recommendation would always be to protect what you’d need to be able to keep up with the cost of life if you’re unable to work – but how long you protect that for, and therefore how much critical illness cover you need, is ultimately up to you. There are lots of things you can consider to help make your decision, which this post should help you with, but essentially it’s about weighing up the cost of being covered with how much risk you’re happy to live with.

This post is intended for informative purposes only and does not constitute advice.