Don't forget a personal accident cover

Individuals should have a standalone policy, over and above any rider taken on life insurance.

When we take the newspaper in the morning, we see at least two pieces on road accidents, everyday. Apart from the mental trauma, such incidents can lead to terrible financial trauma. Therefore, one should be prepared to compensate such losses, if they arise as medical and hospital costs are very high. And most individuals do not have a plan if faced with this trauma.

A study suggested premiums from personal accident covers account for less than three per cent of the total market premiums of Rs 30,000 crore as on 2008-09. This, when it is a must for everyone and is available at affordable premium. One reason for individuals not buying this cover is that it neither offers any investment opportunities nor helps save taxes.

Individuals mostly cover the risk of death by buying life insurance. However, the same is not true when it comes to covering the risk of an accident. Such individuals may face the risk of getting disabled and losing their capability to be actively employed. Not only would the recurring medical costs keep increasing, the loss of income earning opportunity would also loom high.

To illustrate, a 35-year old individual, earning approximately Rs 15 lakh per annum, today on an average should have a life insurance cover worth anywhere between Rs 50 lakh to Rs 1 crore. And, it is also important to cover the risk of loss in income due to an accident. Considering a life expectancy of another 25 years after meeting with an accident at the said age, the individual would require approximately Rs 90 lakh to provide for a monthly expense of Rs 30,000. Further, considering increased medical expenditure of Rs 15,000 a month, the corpus required would add up to another Rs 45 lakh. No support would be received from the life insurance covers in such an eventuality and the gap will need to self-funded.

What is covered?
These policies cover the risk of death / disability arising due to an accident.

Accident, for this purpose, means unforeseen and unexpected events caused by external, violent, visible means and that led to physical bodily injury. As a corollary, bodily injury or death arising solely and directly as a result of such events are settled under this policy.

How much cover should be bought?
In case of life insurance contracts, the underwriters determine the maximum insurance cover that can be granted to an individual. In case of personal accident policies, the extent of coverage is based on the current level of income of the policy proposer (one who has proposed to buy the policy). Across companies, the maximum coverage varies anywhere between 6-10 times of the annual income of an individual, as per the income tax returns records.

Individuals, proposing to take a personal accident cover, should also note that this policy is an annual renewable policy. And at every renewal supporting income documents need to be submitted to justify the cover taken. If required, you could increase your cover as well at renewal, provided your income supports it and you can pay a higher premium.

It is also preferable that individuals have a standalone cover for personal accident over and above a rider that he/she might have added to his/her life insurance policies.

From the insurance company’s perspective, as long as the bodily injury or the death is a direct result of an accident, fitting well as per the definition, the claim procedures are also quite simple. With added benefits, now possible, the traditional personal accident cover has come a long way and definitely merits a place in one’s insurance portfolio.

Benefits under the policy

Death due to an accident

Permanent and/or total disability in an accident

Loss of both limbs / one hand and one foot / loss of limbs and eyes / complete loss of eyesight, speech

Any permanent but partial disability (subject to limits)

Temporary and total disablement - Fixed sum will be paid (based on the sum assured), weekly for a fixed tenure

Additional benefits: With a number of private players entering the insurance space, a lot of innovative benefits are now offered under this cover along with the traditional cover.

Here are some of the extra benefits that are provided by many general insurers -

Education benefit: The policy will bear the education cost of maximum two dependent children, up to the age of 23, subject to limits.

Employment benefits: The policy provides financial compensation up to a specified limit in the event of loss of employment of the insured following an accident resulting in loss of limbs/eyes or permanent total disability.

Ambulance benefits: If the insured has used an ambulance to reach a hospital, the policy will pay the necessary charges up to a specified limit.

Funeral expenses: In case of accidental death, funeral expenses can also be covered

Hospital / Daily cash benefits: The policy provides payment of a fixed allowance on a daily basis on hospitalisation in India for accidental bodily injury, if the hospitalisation exceeds a specified number of days. The rate of allowance and the minimum period of hospitalisation qualifying for payment of this allowance would depend on the plan.

Other benefits: The policy also covers expenses for transportation of dead body, reimbursement of medical expenses incurred for treatment following an accident, cost of supporting items used like crutches, wheelchair, artificial limbs are also reimbursed.