How much critical illness cover should you have?

There are various things to look before getting a critical illness cover. Also, it is equally important to know how much cover you actually need. As per Insurance Regulatory and Development Authority of India (IRDAI), critical illness means an illness, sickness or a disease or a corrective measure like Cancer, Kidney failure, Coronary Artery (Bypass) Surgery, Heart Attack (Myocardial Infarction), Heart Valve Surgery, Major Organ Transplantation, Multiple Sclerosis, Primary Pulmonary Arterial Hypertension , Aorta graft surgery, Paralysis, Coma, Total Blindness and Stroke all as defined in 'Scope of Cover & Benefits' section of the insurance policy issued.

If a policyholder is diagnosed with any critical illness as listed in the Scope of Cover & Benefits section of the insurance policy opted, usually gets a lumpsum amount. So, how much critical illness insurance cover should you have? There are basically two methods to calculate it, one is income method and other is expense method. Let’s check how these both methods work.

Income method is a very easy way to calculate how much critical illness cover you should have? To arrive at it simply multiply your annual income with the number of years you think you require to resume work. This will ensure that expenses such as medical expenses and other fixed expenses such as EMI, etc. are taken care of till you resume work.

This is also an easy way but not as easy as income method. Here you need to calculate the expenses that you would require when you're diagnosed with a critical illness which may involve your current expenses which needs to be adjusted for inflation, then probable medical expenses that you may need to incur post diagnosis of a critical illness, debt repayment as well as some of the future expenses which does not form the part of your expenses today such as child’s higher education, marriage, etc. After all this, you need to subtract your income from other sources such as your spouse’s income, rental income, etc. and multiply them with the number of years until you resume work and also adjust the same for growth.

Now the question would be which method to choose? Though income method is the easiest among the two, it may not factor many things. However, with expenses method, you can actually cover many things which are not incurring today but may incur in the future.