Why take a personal accident policy if you have a term cover?

By Arun Balakrishnan

Acting wisely, Mr. X has been planning his finances ever since he started earning. On the recommendation of his financial advisor, he took a term life insurance policy to secure his dependent wife and children against financial adversity in the event of his demise. He also took indemnity health insurance plans for each family member for protection against medical exigencies. Unfortunately, Mr. X meets with an accident leading to severe fractures which incapacitate him for a year. Whilst the health insurance suffices for a part of the hospitalization expense, Mr. X is forced to dig into his savings to meet the remaining treatment expenses. More importantly, with the only bread-earner unable to work for a year, the family faces severe difficulty in making ends meet.

What could Mr. X have done to avoid this dismal situation? An answer to this would be personal accident insurance. While term insurance provides for the family in case of death of the insured, it does not take into account the financial needs of the family if the insured is disabled, temporarily or permanently, thereby affecting the earning capacity. Thus, a personal accident policy can fill an important gap in one's insurance portfolio, helping the insured's family to continue leading a normal life despite the loss of income.

Personal accident policies provide security to the family in case of death as well as in the event of disablement of the insured, at affordable premium rates. While basic policies only cover death and permanent disability, there are enhanced covers available which also cover minor incidents like a small fracture due to a fall from a bike or a minor injury while playing a sport, which do not require hospitalization.

For those who have loans to repay, a personal accident cover can be instrumental in helping to meet the liability in case earning ability is affected due to disablement.

Personal accident polices are also available as riders with term insurance. However, it is advisable to go for a standalone policy as they provide a wider range of benefits. For instance, a life insurance company would not provide for hospitalization expenses with its personal accident rider. Moreover, personal accident policies are competitively priced, making the premiums affordable. For e.g., for Rs. 10 lakh PA cover, the premium would be approximately Rs. 450/annum. However, one's occupation plays an important role in determining the premium one pays. This is because insurers categorize occupation into different risk levels and charge premiums accordingly.

Typically, the sum assured should be a multiple of the monthly salary. While selecting a policy, take into consideration the amount of loss of income which will be covered. Most policies cover only income from employment and not income from property, investment in shares etc.

Also remember, the quantum of payout received will depend on the nature of the accident or disability. In case of loss of both limbs or both eyes or one limb and one eye, 100 per cent of the sum assured is paid. For partial permanent disability like loss of a finger, the policy terms will determine the payout.

Make sure you comprehend the policy terms and exclusions well. A policy pertaining to total disability will not provide any benefits for a partial disability, albeit severe. This means  while a policy covering total disability will cover the loss of a hand, it may not cover the loss of a finger even if this affects the working and earning ability.

So get a personal accident cover and plug that hole in your financial plan.

The writer is CEO, BerkshireInsurance.com

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