Dalal Street Investment Journal

Are You Braced For Accident Risks?

If you already have life cover, do you really need to get yourself a standalone accident insurance policy? What are the benefits that an accident insurance cover offers? Jay Sampat explains.

KEY POINTS

A standalone personal accident policy provides cover at nominal premium rates compared to a life insurance policy, and also scores in terms of coverage, including that for loss of income and minor injuries.

When buying add-ons along with accident insurance, one must be clearly aware of the sub-limits set by the insurance companies. Such sub-limits are expressed as a percentage of the death benefit.

Chances are high that you already have one or more insurance policies – life, health and/or motor – and feel adequately covered. Hence, you may see no need for a personal accident policy. But think again. Perhaps, you are making a hasty decision.

Have you checked if your life cover (with a rider) is as comprehensive as a standalone personal accident policy? Remember, a standalone personal accident policy provides cover at nominal premium rates compared to a life insurance policy. The former also scores in terms of coverage, including that for loss of income and minor injuries.

A personal accident policy is recommended to individuals not only to protect their families in the event of accidental death (which life insurance already does), but also to cover disablement leading to loss of earning capacity at competitive premium rates. It is all the more important for those who have taken a loan (for example, a mortgage loan, vehicle loan or personal loan) to take a personal accident cover. This would offer protection towards the repayment of outstanding balances in the event of any accident affecting one’s repayment capability.

One can also look at a combination of term and personal accident policies to average out the cost. For instance, on an average, the term insurance cost is around Rs 300 for every lakh of the assured sum, while for personal accidents, the cost is around Rs 100-Rs 200 for every lakh of the assured sum. In addition, there are numerous add-on benefits you can combine with your accident cover. For instance, various policy variants exist that offer features such as hospital cash benefits, cover for any house modifications required etc. for the insured individual in case of an accident.

One should clearly understand one’s risk profile before choosing a cover. For instance, if you are one of those who ride a two-wheeler regularly or are an extensive road traveler, a comprehensive cover is recommended. Also, if you are working in a high-risk profession, taking a comprehensive cover is warranted. People in the high-risk category, which includes explosives factory workers, mine workers, oil rig workers and others in similar jobs, are highly exposed to the risk of accidents. Such people must buy exhaustive permanent partial disability cover along with permanent total disability cover. Insurance buyers must also consider the prospect of replacement of income. Take for example, the case of a sportsperson, for whom the loss of limbs can materially impact his/her earning potential. Some policies pay as much as 20 per cent of the sum assured upon the loss of a finger. Though this may not fully compensate the insurance buyer for the loss of income, it surely helps to mitigate the loss.

When buying add-ons along with accident insurance, one must be clearly aware of the sub-limits set by the insurance companies. Such sub-limits are expressed as a percentage of the death benefit. Since the premium is calculated based on the sum assured upon death, individuals may miss the sub-limit fine print, which may lead to inadequate insurance.

There are instances where an insurer offers some important covers, such as hospital cash benefit along with personal accident insurance, to make the policy appear to be an enhanced offering as compared to other policies in the market. But such attempts often end up compromising the benefits available to the policyholders in order to minimise the cost. Sometimes, the sum assured is reduced and sometimes some key features are totally excluded. For example, one may come across a policy where cash benefit for hospitalisation arising out of accident is capped at Rs 800 per day, which may be too less. If you need higher hospital cash benefit, it is better to opt for a standalone policy offering the same. While the premium may be higher, it helps you buy hospitalisation benefit for the amount you want and covers hospitalisation arising out of illnesses too, which is not the case with many accident insurance policies. Additionally, one gets tax benefits under Section 80D of the Income Tax Act with a standalone hospital cash benefit policy.

Many people believe that buying insurance is a must, and many believe that they should buy as much insurance as they can reasonably afford. This may include everything from life insurance and health insurance to homeowners' insurance and car insurance. Doing this may make you ‘over-insured’. Understanding what kind of insurance cover applies to your situation and what kind does not can help you to maximise the benefits without buying more coverage than you need.

Basic accidental death insurance cover coupled with add-on benefits enhances the insurance cover for individuals at a minimum cost. However, one should not get swayed by the numerous add-ons that come with personal accident cover plans. Remember, the more the features that you sign up for, the higher the price you pay for your accident cover. Start by listing your requirements first, and only then approach the insurance company for cover.