Is personal accident insurance policy really required? If yes, how can I compare personal accident insurance policies and choose the best one available in the market? Should I take it as a rider along with term insurance policy? Or should I purchase it separately from a general insurance company? Which is the better option?
This’s the 7th article in a series of 15 articles (one daily) to help you become a successful DIY investor. You can read the other 6 articles one by one by clicking on the links given below.
- Emergency Funds and how to invest it?
- Importance of term insurance in time of crisis.
- Health Insurance beyond corporate cover and why you need it?
- 5 Financial formulas in excel for personal financial calculations
- What is your risk profile- Cautious/Moderate/Aggressive
- Define your personal financial goals.
A lot of my clients ask me – What’s the need of personal accident policy if I’ve term insurance as well as health insurance? Because if I die, my family would get the sum assured from term insurance. And, if I get hospitalized, my health insurance policy would cover my expenses.
Are we missing something really important here?
Yes, personal accident policy is neither about death benefit nor about hospitalization expenses. Personal accident policy serves the purpose of income replacement in case of disability. Let me take an example to make the explanation easy so that you can understand it with ease.
Suppose Ajay, an IT engineer, met with an accident while travelling from Mumbai to Pune. The accident was so severe that he lost his sight and got blindness in both eyes. Though his life was saved but now it’s impossible for him to work again. There’s no question of payment through term insurance here and the hospitalization expenses were paid by the health insurance policy. How will Ajay survive without any income now as he’s unable to work?
Here comes the actual importance of personal accident insurance policy. It covers the gap between term insurance policy and health insurance policy. The gap of the person being disabled. There’re different types of disabilities defined by insurance companies. But before getting into these types of disabilities, let’s first see, what personal accident insurance policy is all about?
What Is Personal Accident Insurance Policy?
A personal accident insurance policy gives you a lump sum amount in case of death or disability due to an accident.
Death and disability should be solely due to an accident and not because of some natural illness. Therefore, it’s extremely important to understand the definition of an accident in the right sense.
What Is An Accident?
An Accident is a sudden, unforeseen, involuntary event caused by external and visible means according to IRDA guidelines in health insurance.
Also, injury means accidental physical bodily harm. It excludes illness or disease solely and directly caused by external, violent and visible, and evident means. (Which is verified and certified by a Medical Practitioner.)
The definition of accident gives a lot of scope to insurance companies in terms of rejecting the claim. For example, the insurance company may reject a claim if you slip from the staircase in your house. (Calling it your negligence). But the company may honor a claim if you slip from the staircase of a mall.
Now, let us move on to what all is covered under the policy?
What Does Personal Accident Policy Cover?
Personal accidental policy covers the following, due to an accident.
- Permanent Total Disability (PTD)
- Permanent Partial Disability (PPD)
- Temporary Total Disability (TTD)
It must be noted that not all policies cover all the events mentioned above. Different policies cover different events. For example, Temporary Total Disability (TTD) is usually optional in most personal accidental policies.
Most of the policies also offer additional benefits like hospitalization expenses, ambulance expenses, child education benefits etc. But it’s better to ignore these additional benefits. These benefits are just meant to help insurers increase their premiums.
Definition Of Disability And Amount Of Coverage?
There’s no standard definition of accidental disability. Insurance companies define it in their own way.
In the case of Death/Permanent Total Disability, a 100% sum insured is given to the insured person. The conditions under which this payout is made are:
- Loss of both hands or both feet or one hand and one foot
- Loss of a limb (hand/foot) and an eye
- Complete and irrecoverable loss of sight of both eyes
- Complete and irrecoverable loss of speech & hearing of both ears
In the case of Permanent Partial Disability, the policy will pay a certain percentage of the sum insured.
- Total and permanent loss of sight in one eye – 50%
- Total and Permanent Loss of speech – 50%
In case of temporary disability, a weekly amount is paid. It’s paid if the insured person is unable to engage in his profession due to accidental injury like fracture, coma etc. The weekly amount is paid for a fixed number of weeks. It’s normally 1% of TTD sum the insured has opted for. For example, if you’ve opted for 20 Lakhs TTD benefits, Rs. 20,000 would be paid for 100 weeks.
The conditions mentioned above aren’t exhaustive, it’s better to read the policy terms carefully before purchasing the policy.
How To Choose The Best Personal Accident Insurance Policy?
The process to choose the best personal accident insurance policy is very simple and straightforward.
- Do not purchase it as a rider from any life insurance company for 2 main reasons.
- Most personal accidental riders don’t offer the benefits of Permanent Partial Disability (PPD) and Total Temporary Disability (TTD).
- The definition of disability is very weird for most life insurance companies. You’d never even be able to claim Permanent Total Disability benefit (PTD)
- Purchase it only from a General Insurance Company.
- Purchase the policy which offers the feature of temporary total disability – Though your emergency corpus should be able to cover this. But what’s the harm in taking additional cover by paying an additional premium of 2,000 per annum?
Personal Accident Insurance Policy – Comparison
If I take into consideration the above-mentioned points, I’d suggest you check the following personal accidental policies in the market. These policies are better in comparison to other policies as they offer TTD benefits.
- HDFC Ergo – Individual Personal Accident Care
- Max Bupa – Accident Care
- Star Health – Accident Care Individual Insurance
How Much Should Be The coverage?
Ideally, the amount of coverage in personal accident insurance policy should be equal to the term insurance cover. But, however, the probability of permanent total disability is much lesser than the mortality rate. Hence, you can go for a sum insured ranging from 50 Lakhs-1 Crore with a TTD benefit of 15/20 Lakhs depending on your annual salary.
How Much Would Be The Premium?
The premium of personal accident insurance policy totally depends on the occupation of the insured. It doesn’t depend on age. For an IT person, it’ll cost around 10,000-12,000 for a sum insured of 1 Crore. Whereas for a person engaged in mining services, it may cost Rs. 15,000-17,000 for a sum insured of 1 Crore.
Do I Get Tax Benefits On Premium?
Indeed, the most important question for everyone.
No, you don’t get any tax benefits on the best personal accident insurance policy.
This was all about how to compare and choose the best personal accident insurance policy. Do let me know if you have any questions, I would be happy to answer.