I discuss the factors to consider before purchasing a personal accident insurance policy. The key being to understand the insurers definition of what an accident is, and when a personal accident insurance policy will come into force. This is step 8 of Re-assemble – a series on the basics of money management aimed at young earner. Here is a brief summary of all Re-assemble posts.
Re-Assemble: a recap of the steps
Many of you may be on vacation this week. Now would be a perfect time to work on these steps.
Step 3: How to buy Term Life Insurance
Step 8: This post: choosing a personal accident insurance policy
Step 9,10 etc. : Coming soon: Starting investing and portfolio management with examples from readers.
This post is a sequel to Buying Accident Insurance Policies in India: Must-know facts. This covers the basics of accident insurance. I shall cover the basics again here, but strongly suggest that you read that first.
What you and I call as an accident has nothing to do with what an insurer considers an accident.
Personal accident insurance policy: What is the insurers’ definition of an accident?
An accident is a sudden, unforeseen and involuntary event caused by external and visible
and violent means
This means as you walk on the pavement, if some vehicle hits you from behind, it is an accident. If you walk on the road (as we all do as there are shops on the pavement!), if some vehicle hits you from behind, it is not an accident. Because it was not unforeseen and not involuntary.
If you cross the road, not on a Zebra crossing and when the signals are off, and if a vehicle hits you, it is not an accident. Why? Because it is not unforeseen!!
If you enter the toilet in your house and slip, it is not an accident as it not unforeseen and not violent.
Even if admitted as an accident, the claim will be accepted only if the injury is serious enough to prevent you from performing your usual occupation. For some policies, it could be any occupation!
Moral of the story: Do not buy an accident policy hoping it will compensate for anything that you consider an accident. It must not only meet the definitions of an insurer but also must be serious enough for you to stop working.
If so, it is necessary? Not if you have enough wealth. Although an accident policy is extremely selective in accepting and approving claims, it is quite inexpensive and the premium is not as age-dependent as health insurance. Therefore, it does not cost much in owning one.
Personal accident insurance policy: what are the core benefits?
1 Accidental death: Death due to an accident as defined above. If we fall in the bathroom, hit our head and die, it is not accidental death according to a personal accident insurance policy. However, a term life insurance policy will still honour it. So as long as we have a good term life policy (in terms of plan and sum insured), this benefit is not of much use.
2 Permanent partial or total disability. This is the key benefit of an accident insurance policy.
However, this is a disability due to bodily injury that persists for at least 12 consecutive months, certified as continuous and permanent by a doctor after the 12 month period and entirely prevent an individual from being gainfully occupied in any way for the remainder their life.
Does the wording sound like you will be compensated easily and immediately? I cannot overemphasise the need to read, understand and assimilate policy terms and conditions.
Permanent partial disability grid: Each insurer will have a grid like the one shown below (Max Bupa’s)
Even for serious injuries like “Loss or Total and Permanent loss of use of one hand from wrist joint” only 50% of the sum insured will be paid out and don’t expect it to be handed to you on a platter immediately.
3 total temporary disability: This must be a bodily injury that temporarily and entirely prevents one from performing their usual occupation. As an eg. complete bed rest due to an accidental injury.
Note that insurers will not cover temporary partial disability!
This is an extract from United India:
If such injury shall be the sole and direct cause of temporary total disablement, then so long as the insured shall be totally disabled from engaging in any employment or occupation of any description whatsoever a sum at the rate of one percent (1%) of the capital sum insured stated in the schedule herein per week, but in any case not exceeding Rs.5000/- per week in all under all policies per week in any case not exceeding 25% of the Monthly Salary. Provided that the compensation payable under the foregoing sub-clauses shall not be payable for more than 100 weeks in respect of any one injury calculated from the date of commencement of the disablement and in no case shall exceed the Capital sum insured.
The message: You will be paid a weekly or monthly sum (typically peanuts) for a short period of time in the case of temporary and total disability.
Other benefits: Some personal accident insurance covers have the ability to include spouse, children and parents too (HDFC Ergo). You will need to decide if this is necessary.
HDFC Ergo has a feature that pays for the kidnap negotiator (yeah you read that right). Eg. the fees of Russel Crowe in the proof of life. Not the ransom though.
Personal accident insurance policy: what to look for?
A: The key is a comprehensive permanent partial disability table.
1: Total and permanent loss of hearing in both ears
Max Bupa will cover only up to 50% of sum insured
HDFC Ergo 75% of sum insured
2: Total and Permanent loss of speech
Max Bupa will cover only up to 50% of sum insured
HDFC Ergo: 100% of sum insured.
Do you get the picture? Buying a personal accident insurance policy is a far more difficult experience than even life or critical illness insurance.
You need to look for a cover that pays as much as possible for as many situations. A policy comparison portal will only provide a shortlist. You need to dig deeper.
B: Add total temporary disability cover if you can afford the premium.
C: Accidental death will be included by default.
D: Include your family if necessary. Search for other (un)desirable features in the policy wordings. Don’t be lazy and read the feature list on the website or ask in AIFW forum.
Personal accident insurance policy: how much cover to buy?
If we die, the expenses of our family will reduce. If we become bed-ridden or become disabled, the expenses will increase. So technically speaking, accident cover should be much higher than life cover. This is not the case. Typical accident cover will only for few to tens of lakhs and it depends on your income (typically not more than 10 to 15 times annual income).
As always, the idea is to buy a maximum cover for as much as one can afford.
Personal accident insurance policy: Comparison
You can compare personal accident insurance policies in the gibl portal.
- Personal accident insurance policies will only pay when their definition of an accident will be met. So common and simple accidents will typically not be covered.
- You can buy one as they are inexpensive and the risk of accidents exists for everyone.
- You need to look at the permanent disability benefits and then choose a policy
- Please do not forget to read part 1: Buying Accident Insurance Policies in India: Must-know facts
- Health insurance or accident insurance, we all will need a corpus for medical expenses so get to it asap!
Let us hope, pray and wish for a happy, and healthy 2018. If you have accident insurance, do share how and why you purchased it in the comments section.
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