Personal Accident Insurance – part 1
2016-06-16 14:27:00 UTC
Personal accident insurance is a policy that protects the policyholder against death or disability due to an accident; in the event of an accidental death or disability, this insurance policy will pay the policyholder or his dependents a lump sum financial compensation.
Why do you need personal accident insurance?
Accidental deaths are the fifth leading cause of death worldwide and accidents are the mostly likely cause of death of young people below the age of 45 anywhere in the world. In India, road accidents alone claim 400 lives a day and majority of the people involved in the accidents are in the age group of 15-34 .
A term life and health insurance policy covers you for death and hospitalization respectively. However, when an individual survives a mishap and has to endure total or partial disability for the rest of his life, it could potentially lead to loss of income for several months or years. Unfortunately, you cannot always keep away from accidents, but you can lessen their financial impact .This is why a Personal Accident Insurance policy for 8 to 10 times your annual income can be very handy especially for people in the 21-34 age group, as most people involved in accidents are that age.
What are the various ways of acquiring a personal accident cover?
You can buy an Accident cover in many ways.
- As an optional rider with a life insurance policy
- As an add-on policy to your motor insurance or home insurance
- As a group insurance cover from your employer
- As a standalone plan.
You can buy accident insurance policies from most general insurance companies, but unfortunately, agents seldom promote these low priced policies, as the commissions are low due to the low cost of the policies. However, you can buy these policies online.
Pros and Cons of each option
Stand-alone PA insurance policy:
As with all stand-alone policies, a personal accident insurance policy is comprehensive and provides you a certain degree of freedom in choosing a plan with the right coverage as well personal accident benefits .
The main benefits are
- Relatively cheaper than accidental death benefit riders
- Flexibility in choice of sum assured and benefits
- Partial/ temporary Disability and dismemberment insurance benefits as stated in the plan
- Hospitalization benefits as stated in the plan
The only disadvantage with this policy is that an individual has to manage an additional policy.
Accidental Death Benefit Rider(ADBR) with a Life Insurance policy:
Accidental death benefit riders(ADBR) with term life plan provide you a cover worth 1.5 to 2 times the sum assured. This is a substantial sum and is therefore worth considering seriously, if you don’t want to maintain and manage an additional policy.
However, the Personal accident death benefit riders come with strings attached and do not always cover the possible permanent or temporary disability in the aftermath of an accident. Moreover, life insurance companies offer only life cover and cover for other costs such as hospitalisation are beyond their remit.
Add-On to Motor Insurance policy:
Most comprehensive motor insurance policies include a basic cover against death and permanent total disability which can be enhanced, to pay for hospitalisation charges, disability benefits, etc.
In terms of utility and benefits, however, this option does not compare favourably against a comprehensive standalone policy or an accidental death benefit rider with a term life policy.
Group Accident Cover:
This is personal accident insurance taken by your employer on your behalf. The benefits vary depending on your company, your designation, and your field of work. In some lines of work involving manual work, and work with heavy machinery, personal accident cover is built into the group cover.
It is generally possible to top up your group insurance cover to provide personal accident cover, but this process is cumbersome.
What are the costs involved?
Generally, the premium varies depending on the plan you select and the coverage.
Unlike health or term life policies premiums for accident insurance policies do not depend on age of the insured but rather on the type of profession or occupation you are in , the working conditions and the occupational hazards associated with your profession.
People who have a desk based or administrative kind of jobs are perceived as low risk. An individual working in a industrial facility such as mines or chemical plants are classified under a higher risk category. People handling cash or in professions such as investigative journalism are in the high-risk category.
Below are the cost comparison for two policies. We have considered the example of a 30 year old, non smoking male, in the low risk category.
Typical term life policy with ADBR
cost and benefits of term life plan with PA cover
Personal Accident insurance policy
standalone PA plan benefits and cost
As seen above, it is clear that a standalone PA policy is more comprehensive and covers partial, permanent and temporary disabilities unlike the ADBR, which only covers Accidental death and permanent disability. However, ADBR provides accidental death cover for twice the sum assured.
A basic personal accident insurance policy is not very expensive. It is advisable to buy one right away and plug the gap in your insurance portfolio. If you are bothered about managing an additional policy, get an accidental death benefit as a rider with your term life plan. Barring that, you can also opt for one with your motor policy(although for reasons mentioned above, this is not optimal).
In part 2, we will look at the personal accidental insurance cover in more detail.