Buying Accident Insurance Policies in India: Must-know facts

Here are some must-know facts about accident insurance policies in India that a buyer should be aware of. An accident insurance policy is one that provides

  • 100% of sum insured in case of accidental death,
  • 100% -50% of sum insured in case of permanent total disablement (eg. loss of both limbs, both eyes, both feet)*
  • Anywhere between 70% to 5% of sum insured in case of permanent partial disablement (loss of one limb, one eye …)*
  • About 1% of the sum insured for about 100 weeks (or so*) in case of temporary but TOTAL disablement.

(*) These features change from insurer to insurer.

Although inexpensive, accident insurance policies are not “simple” products. Here are some must-know facts about accident insurance policies in India.

Definition of an accident

An accident is a sudden, unforeseen and involuntary event caused by external and visible and violent means.  – Individual Personal Accident Policy Prospectus United India Insurance.

Examples:

internal injury resulting in death or disability is allowed.

Mental illness resulting in paralysis is covered. Reference: Module 4: Practice of General Insurance – Personal Accident Insurance

“caused by external and visible and violent means”:  What if a person dies or becomes disabled (permanently or temporarily) due to an accident which no one witnessed and for which FIR is not necessary? It is not clear to me if such accident would be covered. What is ‘external’ is not well defined.

Subra mentioned in a thread I started a while back at Facebook group Asan Ideas of Wealth, that electrical shock at home may not be covered by all insurers.

Pregnancy-related deaths are not considered as accidents.

War and nuclear peril related incidents will not covered. Terrorism is explicitly excluded by some insurers.

The doctors assessment of the cause (if needed) and prognosis of the condition is key for claim settlement.

Definition of temporary total disablement

The weekly payment in this case of often used as a selling point for these policies. However, the payout will be made only if the disablement is ‘total’. That is, it should prevent a person from carrying out all duties associated with their job.

If a leg injury forces a person to stay in bed, they could still work from home! So the insurer is likely to not pay in such circumstances.

Thus, the definition of temporary total disablement is quite narrow: temporary coma and paralysis caused by accident are likely to be covered.

Accident insurance policies are not for medical reimbursement!

About 20+ years ago, a bull took a swipe at my father, when he was walking on the road. The horns injured my father’s thigh and he had a head injury due to the fall.  He narrowly escaped death. However, he was not disabled partially or permanently. Therefore, he could not have claimed the hospital expenses through an accident insurance policy (if he had one that is!).

Accident insurance policies are meant to offer compensation either to the nominee or to the insured for loss of income due to death or disability. They cannot be used like a health insurance policy for accidental fractures, muscular injury etc.

Beware of Accident insurance riders!

Accident insurance can also be taken as a rider to a term insurance policy. However,  these riders typically only cover permanent total disablement. Partial disablement like loss of one hand, one leg or one eye is not covered!

Also, temporary disability is also not covered.

However, the definition of accident in these riders is the same as that of a standalone policy.

Stay away from all riders – accident insurance or critical illness. Opt for a pure term insurance policy and but a standalone accident insurance policy. Buy a critical illness policy if there is a history of critical illness in the immediate family circle.

Principle of utmost good faith

Any kind of insurance is based on good faith. That is the insured must declare all relevant facts while applying. In the case of life insurance and health insurance, any change in health condition or occupation need not be informed to the insurer when the policy in force.

In the case of accident insurance, if the nature of the job changes,  the insured is obliged to inform the insurer about it.

How to buy an accident insurance policy?

Is it necessary? Yes. In addition to health insurance and term life insurance an accident insurance is mandatory for professionals whose income could suffer due to an accident.

How much cover should one opt for? Tough question! As much as the insurer would allow depending on ones income. PSU insurers (United, New India and Oriental) offer about 6 years gross annual income up to 10 Lakhs and require checks/approval above that.

Privates offer higher sum insured.  For someone in 30% tax slab, only a cover of 50L and above makes sense. So I suggest getting one from an established  private general insurer.

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