Understanding Personal Accident Insurance

Understanding Personal Accident Insurance

As opposed to a life insurance policy which provides financial protection to family members after the policy-holder’s death, a personal accident insurance policy is equally important since it offers compensation in case of any accident that may lead to disability. The article highlights what this policy is all about

Insurance planning is a crucial part of every financial plan. If a person is adequately insured he has less to worry about any financial uncertainties in the future. Most people have life insurance policies in place but are those sufficient to cover all the financial uncertainties that may arise in the future due to some unforeseen circumstances? What if a person meets with an accident and suffers permanent or temporary disablement? This is where personal accident insurance comes into the picture. According to the Ministry of Road Transport and Highways, on an average 1,230 accidents and 414 deaths occur every day i.e. 51 accidents and 17 deaths per hour in India.

So, looking at this number, personal accident insurance must surely become a vital part of your insurance planning. Apart from road accidents, mishaps occur in during rail travel or due to natural forces or unnatural forces i.e. they include deliberate or negligent conduct on the part of human beings. The following graph depicts the number of deaths that take place in India in a year due to accidents.

A personal accident insurance policy provides you compensation in case of death or disablement caused by accidents. The policy covers any unfortunate event occurring due to road, rail and air travel. Besides these accidents it may also cover any fateful incident that can occur at your workplace, especially if you work in high-risk settings like mines or factories where you may have to work with bulky and hefty machineries or explosives. Accidents at a workplace can lead to a major financial crisis. This is where personal accident insurance will reimburse or compensate for any disablement or death caused due to the accident not only at your workplace but anywhere else also.

Coverage Portfolio
There are various types of personal accident policies:Individual Accident Insurance: The policy covers a particular individual against any injury or death caused due to an accident.Group Accident Insurance: This type of policy cover is normally proposed by companies or employers to their employees. These policies are at discounted rate as per the size of the organisation. This policy offers a basic plan and may offer inadequate benefits as compared to individual policy.

Life Insurance versus Personal Accident Insurance

Most of us get confused between life insurance and personal accident insurance. Life insurance is protection against any financial crisis impacting dependents in case of unfortunate or unexpected demise whereas personal accident insurance provides protection in case of disability or death arising due to an accident. The following table compares the two:

Case Study
Consider the case of Anil Sharma, working in Mumbai while his family lives in Pune. Anil was returning back to Pune during which he met with an accident, leading to hospitalisation and loss of an eye. The hospital bill was of Rs 3 lakhs. During such a dreadful financial as well as mental state, his family had no other option but to dip into their savings. Anil became partially disabled due to this accident. Now let us look at two situations arising from this incident. In the first situation, Anil has both life insurance as well as personal accident insurance policies. Given that he has met with an accident, he will receive 100 per cent or less than 100 per cent payout of the sum insured depending up on the terms of his personal accident insurance policy and the nature of disability.

Accidental insurance will provide coverage for the consequences arising out of his disability and provide financial stability to the policy-holder i.e. Anil. In the second situation, Anil owns only a life insurance policy. In this case he won’t get any compensation or reimbursement for his disablement caused due to the accident since the life insurance coverage is limited to death benefit. In this case all the expenses will be borne by Anil and his family, thereby severely affecting their savings and their ability to meet financial goals in the future. It thus becomes clear that a personal accident policy has unique advantages which a life insurance policy does not offer.

Standalone Personal Accident Plan
Personal accident insurance cover is offered in three ways in India. First it can be standalone, second is rider or add-on with life insurance and health insurance and finally compulsory cover in motor insurance plans. Without going into much detail, it is better to get a standalone personal accident insurance plan. This is because it gives you wider scope of coverage, the sum assured is higher and finally the plan can be flexible so that you can customize according to your needs. And though premiums may be a little bit higher in case of a standalone plan, the benefits outweigh the cost.

From the above information what we have seen is that life insurance and personal accident insurance should be part of your financial planning to be able to serve two different purposes of risk management. While life insurance plays a crucial role in one’s insurance planning, personal accident insurance also seems to be a key component of it. Having life insurance as well as personal accident insurance ensures that one is not just insured by policies after death but also in life-threatening situations that could impact financial wellbeing. Therefore, it is suggested that while creating an insurance plan you should assess your risk appetite in order to be completely insured.


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