Critical Illness (CI)
Asked 2w ago
If you are down with CI, you will require financial liquidity to deal with the myraid of costs that are associated with it, beyond just the hospitalization bills. Thus, CI coverage is something that I recommend be kept for life. However, we don't want to pay for life and that is where a limited payment whole life plan covers you.
Such costs include the loss of income when you are working, and when you are retired, you will want to avoid liquidating your income assets to pay for your expenses.
You'll often find that a term plan till age 75 with CI cover will likely be more expensive than a limited pay whole life plan covering the same amount (depending on your age, profile, etc, of course). In this case, a limited pay plan would make more sense from a total cost perspective as your retain your coverage for life.
In a best case scenario, you pass on peacefully and the payout goes to your estate.
CI is a lump sum payout, and is triggered when an insured event occurs. Its purpose is to protect against a loss of income and the accompanying issues of a higher cost of living.
So the qn is when do you think you could possibly get a ci. And the short answer is as long as you are alive.
My basic rule of thumb is get a ci cover, a base amount for life. That way when ci does occur, you have payout to mitigate financial grief. As a survivor of a serious medical condition, let me tell you the last thing you want to worry about is money. It's awesome to be able to get treatment and rest at home.
As a matter of fact, critical illness may not be the end of the world. In other words, you are expected to recover from the illness and to lead life as it used to be after the recovery.
With this in mind, the payout from critical illness coverage ensures that you do not have to empty your life savings or to worry raising money for treatment.
Now comes the tricky part. In truth, we won't know when an illness will strike. However, we know for sure that we will need the money when an illness strike. Therefore, I will get covered for as long as I live. And the longest policy available right now is till age 100.
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I strongly believe CI coverage should be covered for life or at least till 85, but not paid till that age.
CI payout is for income protection. Both when you're young as you may not be able to earn an income from employment, but also in old age to protect your retirement funds or passive income as you don't want to draw down your portfolio too quickly or sell less liquid assets.
Insurance payout is instant liquidity, and takes away the psychological aspect of managing a portfolio at such an old age.
This is why a Limited Premium Whole Of Life Plan with CI riders would be my go to recommendation. You finish paying up the policy in 5-25 years but get lifetime coverage, inflation protected as well.