What is a lump-sum payment?
Generally speaking, a lump-sum payment is a particular amount of money paid in one single payment to an individual. Also known as a bulk payment, a lump-sum payment offers beneficiaries the option of receiving a payment all at once instead of in installments. Lump-sum payments are commonly offered in situations like pension, retirement plans, or death benefits in insurance.
To determine the lump-sum payment you need from your critical illness insurance policy, you need to consider your personal obligations, the obligations of your partner, monthly expenses, recovery expenses, and domestic help costs for a minimum of six months.
What is critical illness insurance?
In general, critical illness insurance is designed to provide financial relief in the case of medical conditions like heart attacks, organ transplants, or strokes. Critical illness insurance acts as a form of supplemental insurance, and may help pay for costs where traditional health insurance falls short. With varying coverage limits, you may be eligible for a few thousand dollars up to $50,000; you just have to explore what policy is best for you.
It is worth noting that certain cancers or chronic illnesses may be excluded from your critical illness insurance coverage. As a result, it’s always important to review a policy’s terms of coverage before purchase.
How to determine the lump-sum payment for a critical illness policy?
First things first, you can’t pinpoint how much critical illness insurance you need down to the cent. However, you can probably make a good estimate about how much insurance you need by examining your current financial situation.
To determine the lump-sum payment you need from your critical illness insurance policy, you need to consider co-insurance, deductibles, and the following:
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Your obligations:
If you get sick, you may be out of work for a while. Add how much income you would lose if you were out of a job for a minimum of six months due to terminal illness. Remember, this is not to be confused with disability income insurance!
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Your partner’s obligations:
You’re sick, so your partner may need to step in. Add how much income your partner would lose if they were to take a leave of absence to assist you. Estimate a three month minimum.
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Monthly expenses:
Mortgage, rent, credit cards, loans and other debts, bills. Any monthly expenses you have you want to account for. As a general rule, account for six months of these expenses.
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Recovery expenses:
After a critical illness, you may face a potentially long recovery. Take into account recovery expenses like medical equipment, transportation to and from treatments, hospital parking, and any home modifications. For a frame of reference, estimate $10,000 minimum for home modifications and $5,000 minimum for equipment.
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Domestic help:
Staying healthy in your recovery means dedicating time to heal. In many cases, this means you will need some help with childcare and housecleaning. Estimate three days a week for a six month minimum, with each hour of care costing $25.1
Once you account for your personal obligations and the obligations of your partner, monthly expenses, recovery expenses, and domestic help, you will have a fairly sound estimate of how much money you will need if faced with a critical illness. Take this total and find a policy with a lump-sum payment near that amount. Also, please remember that if you are estimating based on a six month period, that you are making a conservative estimate and may need more coverage depending on the critical illness and its severity.