Insurance policies are always purchased with the hope that they will never be needed. Personal accident covers are no exception. Many of us would rather not even think about accidents – but this shouldn’t stop us from thinking about protection for us and our dependents against the financial burden, in the eventuality that an accident does occur.
In our earlier article about health insurance, we spoke about how you should supplement it through a critical illness cover and an emergency fund. We think the personal accident policy too should find a place in your insurance armoury to guard against the financial hit that accidental death or disability could cause.
What is an Individual Personal Accident (IPA) policy?
An accident can bring with it significant expenses not just towards hospitalization, but also sudden and unexpected loss of income, especially if encountered by a breadwinner. This is what the IPA policy covers against. This type of policy makes a lump sum payment (usually 100% of sum insured) in the event of accidental death or total permanent disability. ‘Total permanent’ is defined as disablement that prevents the insured from engaging in any means of living for the remainder of life and has been continuously present for a defined period of time after the accident. It must be certified as total and permanent by a physician. The policy may also pay a percentage of sum assured in the event of permanent partial disability (injuries such as loss of one limb, loss of an eye or vision in one eye, loss of hearing that are certified as permanent are included under this).
The disability cover is the most critical part of an IPA policy for the buyer because it is not available from either mediclaim or term life policies. For this reason, the term insurance + mediclaim combination cannot be a substitute for a personal accident cover. The IPA can be used to supplement mediclaim on treatment costs. But more importantly, it can be used to replace lost income due to an accident.
What to look for
While IPAs do cover accidental death, all such policies may not cover the other outcomes an accident can have. Some have a base version that covers only accidental death with better versions that cover total permanent disability and total partial disability. Total temporary disability (where the insured is completely unable to temporarily carry out his usual occupation) is not always covered. In most cases, it can be plugged in as an add-on for a higher premium. If you have dependents, the add-ons that cover permanent or temporary disability are a must-have on your IPA.
Most IPA policies make a lump-sum payout on death or disability of the insured due to accident. To make a claim, insurers have a condition that this should have occurred within 12 months of the accident and must be directly attributable due to the accident. Some insurers also require the disability to be present continuously for a minimum number of days before they will pay the claim. In addition, IPA policies may pay out a periodic allowance for a specified duration (usually 100 weeks), in the case of temporary total disability.
Many policies in the market also offer additional benefits, available as add-on options or as variants of the base policy, which cover things such as:
- hospitalization expenses (which is an indemnity component usually capped by a percentage of sum insured)
- coverage for education cost of dependent children
- ambulance cost / air ambulance
- loan EMI
- modification of home / vehicle
- special benefits for burns / broken bones / coma
- missing person in an accident and even
- pet care
Accident covers are available as individual policies (IPAs) or on a group basis via your employer and can be purchased starting from age 18. Even younger children may be included if one of the parents is covered under the same policy.
- Timelines: They are usually available as annual plans with some insurers offering a possibility to sign up for 2 or 3 years. They come with a grace period of 30 days and a free look period of 15 days. Unlike health insurance covers, these policies do not come with a waiting period and you are immediately covered once your policy has been issued.
- Lower premiums: A big plus for personal accident policies is that they are less expensive than their health insurance counterparts. A simple base cover of Rs. 5 lakhs for the lowest risk category could cost as low as Rs. 200 to Rs. 300 per annum. They are usually not aggressively sold on account of the lower commissions they fetch agents and intermediaries.
- No medical check-up, occupation determines risk level: Personal accident policies do not require the insured to undergo a pre-policy medical check-up, seen as one of the biggest ‘inconveniences’ in availing an insurance cover. This is because your risk of being in an accident changes more with your occupation and lifestyle rather than with your age and medical condition. This is what drives underwriting and therefore, premium.
- Insurers classify occupations under different risk categories. For e.g. a deskbound job is treated as not as risky as a job that requires one to operate heavy machinery. Occupations requiring one to work in underground mines or with explosives, with electrical installations that have high tension supply, motor or horse racing, are all usually placed under the highest risk category. Once insured, any change in occupation that impacts risk level categorization could affect the validity of the policy and should therefore be promptly communicated to the insurer. Changes in occupation could result in a higher or lower premium. Having said that, many personal accident covers also do a loading of premium for the insured being above a certain age (usually 65 years).
- Worldwide applicability: Generally, personal accident policies have worldwide applicability and are not limited to India.
- No tax benefits: Premiums on standalone personal accident policies do not command any tax benefits unlike payment of premiums on term and health insurance plans. However, this in our view can’t be listed as a negative feature, as tax benefits should not really drive your insurance decision. Relatively lower premiums on this product offset this concern to an extent.
Like with any insurance cover, personal accident covers too come with a set of exclusions. The table below gives the most common among them.
Who should take it?
Based on the nature of your work, your commute and lifestyle and dependents, it may be advisable to take a personal accident cover as soon as you start earning. While statistically the chances of encountering a life-altering or even a small accident may be low, it has to be viewed in the context of the impact an accident could potentially have. By this logic, the case is strong to go in for a personal accident policy when one
- is the sole / primary or secondary breadwinner of a family
- has dependents that one supports financially such as children for education, a non-working spouse, elderly parents
- just starting out
- not backed by a large enough emergency fund or savings to replace income or take on the burden of added expenses
- has financial obligations (loans)
The many ways to get a personal accident cover
#1 As a rider on your life insurance
Just like in the case of critical illness cover, personal accident cover too can be obtained as an ‘accidental death and disability’ rider on your life insurance. When you opt for this rider, you will be able to choose an additional sum insured for accidental death benefit, with a very reasonable additional premium.
While this may be tempting as the premium paid will be exempt under section 80C as part of your life insurance, such riders come with many exclusions. They usually cover only accidental death and permanent total disability. The accidental death benefit is also capped because the sum assured under a rider cannot exceed that of the base policy. Further, the rider is tied to your base policy and stays in force only as long as the life policy is live. Should you choose to discontinue your term plan, you will be left without a personal accident cover as well. Our earlier article on term insurance riders details why a rider on your term plan, though economical, may not be the best way to get a personal accident cover.
#2 Bundled with other health insurance covers
Some health insurance products offer add-on personal accident cover or variants that come bundled with personal accident cover but these too come with a lot of exclusions. Further, a claim in one section of the policy could reduce your sum insured for other claims or could result in the policy being terminated.
#3 Standalone personal accident covers
Most insurers offer standalone individual personal accident policies and this we believe is the best way to get personal accident insurance. Standalone policies have a wider coverage in terms of various accident outcomes, flexibility in sum assured and add-ons that can be used to customize the policy to suit one’s circumstances and risks.
What is Saral Suraksha Bima?
Due to the large number of personal accident covers available in the market, in April 2021, IRDAI mandated all general and stand-alone health insurers to offer a standardized personal accident insurance product called the ‘Saral Suraksha Bima’ followed by the name of the insurer offering it. This product has a standardized set of benefits, policy wording, exclusions and a limited set of optional or add-on benefits so the key differentiators are just the premium and the insurer offering the product. The main features of the Saral Suraksha Bima are:
- Available on an individual and family floater basis for people aged 18 to 70 years (for dependent children 3 to 35 years)
- Available as a 1-year policy
- The sum insured can range from Rs. 2.5 lakhs to Rs 1 crore
- The base covers are death, permanent total disablement and permanent partial disablement
- Optional covers are temporary total disablement, hospitalization expenses due to accident and education grant
While Saral Suraksha Bima addresses the problem of having to sift through lots of fine print by offering a standardized product, it has its limitations in terms of a cap on the sum insured and also a very limited list of optional covers. Due to this, the standalone personal accident products available will be the best way to go, despite the extra effort it will involve in going through the various products on offer to pick the best one for you.
Factors to consider while evaluating an IPA policy
- Sum assured: Many personal accident covers cap the sum insured at a multiple of monthly or annual income. Thumb rules such as 100 times monthly income are used to arrive at the sum insured. It is not easy or fun to try and estimate the amount of money one would need to live with a disability but it may be worthwhile to do a little bit of maths on your own. The personal accident cover should replace your income after accounting for inflation, cover major goals such as university education for your children, repayment of home loan, providing for elderly parents and fund an increased cost of living on account of disabilities. Our earlier article, ‘How much life insurance do you need?’ has some useful pointers that could also be applied to arriving at a personal accident sum insured. However, if you already have a term life policy, it is sufficient if that policy and your accident policy together take care of income loss etc. in case of death.
- Cover: Many personal accident policies offer a base version that only covers accidental death for lower premium, and better versions that cover disabilities for a slightly higher premium. It would be better to opt for covers that include disabilities rather than plain vanilla accidental death cover.
- Exclusions: Just as it is impossible to predict IF one will encounter an accident, the very definition of the word ‘accident’ makes it impossible to predict the TYPE of accident one might encounter. However, occupation, means of transportation used, ‘leisure’ activities and other lifestyle choices could offer clues as to the risks one is susceptible to and it should be ensured that these are definitely covered. Many personal accident policies exclude hazardous / adventure sports and include things like horse racing and scuba diving under that category which may actually just be routine weekend activities for some people.
If you routinely seek an adrenaline rush through adventure sports, or you like to commune with nature through solo treks deep inside forests, then you should opt for a policy that covers the risks associated with these activities and this would take a little bit of homework but there are products or variants of products that offer cover against these too.
In sum, it is prudent to buy a personal accident cover to protect against the financial impacts of meeting with a devastating and life-altering accident. A standalone personal accident cover that covers permanent or temporary disability should be the main feature to look for, as your term life plan may already cover the eventuality of death. It should be opted for at the early stages of your career to complement your Mediclaim, critical illness and term life covers.