Why you MUST have a personal accident insurance policy

Add this cover and keep the risk of loss of income due to disability at bay.

In India insurance is not bought. It is sold.

More often than not, the buyer is not aware of what insurances s/he should have and accepts what is sold to her/him by the insurance agent.

It is no surprise then that most of the insurance portfolio of an individual consists of investment-linked products (like ULIPs), which do very little for the buyer either on the insurance or on the investment front. But it does make money for the seller by way of hefty commissions.

Most people today are aware of two basic covers: life insurance and health insurance. While the purpose of life insurance is to cover the risk of early death, the purpose of health insurance is to act as a cushion against hospitalisation expenses.

Yet, there is another equally important cover, which is ignored by most people. It is the personal accident insurance policy. This insurance not only covers death by accident, more importantly it covers disability that may be caused by an accident.

Take a scenario where a person meets with an accident that causes a disability such that the person is not able to work for a year. Here, life insurance cover will not help since the person is alive. Health insurance will only cover the hospital bills.

What about the loss of income for a year and an increased level of expenses? Here is where the personal accident policy can provide some respite.

The author Aditya Prasad is chief evangelist at Perfios.com and can be reached at adi@perfios.com.

It is important to note here that life insurance companies provide riders with life insurance policies for accidental death and even permanent total disability. However, these riders are restrictive and the coverage of a standalone personal accident insurance policy is much wider.

A personal accident policy would cover the following:

Accidental death

• In case of death by accident, the entire Sum Assured is paid to the beneficiary
• Some companies also provide a child education bonus if the terms of the policy so specifies

Permanent total disability: For example loss of sight of both eyes, loss of both hands or both feet

• If a person is permanently disabled due to accident, the entire Sum Assured is paid to the person
• Some companies provide a higher amount of 110 to 125 per cent of the Sum Assured in case of permanent disability
• Medical expenses are reimbursed and child education bonus may also be provided if the policy so specifies

Permanent partial disability: For example, loss of sight of one eye, loss of a hand, loss of a foot

• Depending on the degree of disability, companies may provide a certain percentage of the Sum Assured as lumpsum
• Some companies provide a small percentage of the Sum Assured on a weekly or monthly basis for a specific period as given in the policy

Temporary total disability: Fracture, for example

In this case the company may either pay a lumpsum benefit or a regular amount over the fixed period of time.

Not all personal accident policies cover all the above disabilities. Companies usually have different plans starting from Basic to Comprehensive where the level of coverage and the compensation varies. A good policy would be one which covers at least the permanent disability, both total and partial along with accidental death. 

Premiums are not age-dependent

Unlike most insurance policies where premiums increase with age, in case of personal accident policies, age is not relevant.

The premium depends upon the risk related to the occupation. There may be two or more categories of risk levels defined by companies as per which the premium is determined.

For example, accountants, bankers, lawyers would have the lowest risk level given the working conditions and nature of the job and hence the premium on the policy would be low.

On the other hand, people working in mines, electric installations or any other hazardous conditions where the risk is high will have to pay more for the accident cover.

Other features of personal accident policies 

• Any person between the age of 18 to 65 (80 in some cases) can opt for a personal accident cover
• The coverage or the Sum Assured would depend on the income of the individual. Most companies provide coverage based on certain times the monthly or annual income. The coverage can range typically between Rs 1 lakh to Rs 50 lakh or even higher.
• There generally is an option to take the coverage for a year or even for a 3 to 5 year period, post which it would have to be renewed.
• Some policies provide coverage for claims arising out of acts of terrorism.
• The general exclusions from the policy are: losses arising out of attempted suicide, self injury, war and nuclear perils, losses due to committing any breach of law or under the influence of alcohol and the like.
• No health checkups are required for the policy
• Family discount of 10 per cent may be provided
• Tax benefits can be availed under Section 80D of the Income Tax Act. 

The cost

The last and most important question is that: Is the policy expensive?

Personal accident cover is amongst the cheapest policies and perhaps that is the reason these policies aren’t sold by agents.

Rs 10 lakh cover can come for as low as Rs 1200 per annum.

While it is possible to take these policies online, one can also take it from an insurance agent, preferably while taking a health or life cover. Given the low commissions involved in the policy, no agent may agree to provide only an accident policy.

It is prudent to compare different policies available in the market on the features and benefits before deciding the right policy. In some cases, employers may also provide an accident cover. If the cover is adequate, no additional cover may be required as long as you are working with the company.

A personal accident policy is an important cover and it does not burn a hole in your pocket given the low premiums, so add this cover and keep the risk of loss of income due to disability at bay.