The NCRB data shows that road accidents are the biggest killers in India, accounting for almost 44% of the total accidental deaths in the country (see graphic). Personal accident policies don’t cover just road accidents, but any mishap. One might fall from a height and fracture a leg, or suffer burns while cooking, or simply get electrocuted by a faulty appliance. A personal accident policy will pay the full amount in case of death, and a percentage of the sum insured in case of disability. The nature and extent of disability, as certified by qualified doctors, determines the payout to the policyholder. Having said that, we must clarify that a personal accident policy is not an alternative to a term insurance plan, which covers a person’s life, and a comprehensive health insurance policy, which covers hospitalisation expenses. These covers are absolutely necessary to fortify your finances against unforeseen events. The personal accident policy should complement these covers, not replace them in your financial plan.
Causes of accidental deaths
Traffic accidents are the biggest killers.
29 ACCIDENTAL DEATHS PER 1 LAKH POPULATION RECORDED IN INDIA IN 2021.
3.97 lakh people died and 3.77 lakh were injured during the year.
1.23 lakh (or 31%) of the deaths were in the age group 30-45 years.
Another 1 lakh (or 25.5%) of those killed were aged 18-29 years.
How much it costs
The good news is that personal accident insurance is very cheap, costing as little as Rs.1,125 (plus 18% GST) for a cover of Rs.25 lakh (see graphic). “You can’t buy a litre of milk for Rs.45 today, but we give you cover of Rs.1 lakh for one year at that price,” says an official of the Oriental Insurance Company. If the policyholder takes a cover against disability, the premium will be a little higher at Rs.2,500 per year. Coverage against disability is very important because no other policy gives this insurance. In fact, this coverage is what really differentiates a personal accident policy from life and health insurance. Disabilities can be partial or total, temporary or permanent. A fractured leg that prevents you from moving is a total disability, but only temporary. A severed finger is a partial disability, but permanent. The payout will be different in both cases because the impact on the earning capacity of the person will vary.
The sale of personal accident policies has declined in recent years.
One can also extend the coverage to include medical expenses for the treatment of injuries sustained in the accident. By paying Rs.1,250 more, one can add a third layer of protection that will pay 1% of the sum assured per week during the time the policyholder is disabled. So, if a person takes a cover of Rs.25 lakh and suffers injuries that leave him bedridden for eight weeks, he would get Rs.25,000 per week for that period. This can extend up to a maximum of 104 weeks (two years), and is very useful when serious injuries cause total disablement. There is also an extension that pays for medical expenses. This coverage is similar to that of a medical insurance policy and will pay actual expenses incurred on the treatment of injuries caused by the accident. This cover comes at a cost of 10-25% of the premium and pays out 25-50% of the base sum assured. So if the premium for the Rs.25 lakh cover against death and disability is coming to Rs.3,750, the additional cost of the medical extension will be Rs.375 for 25% of the sum assured (Rs.6.25 lakh) or Rs.940 for 50% of the sum assured (Rs.12.5 lakh).
How much will Rs.25 lakh cover cost?
Basic personal accident insurance is very cheap. Even with the add-on covers and additional benefits, the cost of a Rs.25 lakh cover is less than Rs.15 a day.
How much cover do you need?
While buying personal accident insurance, don’t go for a very low cover of Rs.1-2 lakh. A cover this small will not serve any meaningful purpose. Take a cover of at least Rs.20-25 lakh so that any untoward development is adequately covered by the policy. However, there is a limit to how much insurance cover you can take. The cover is usually 10 times the annual income of the insured person. To prevent fraud, insurance companies insist on seeing your tax returns to assess your income. “The tax return is a true indicator of your income. Nobody will inflate his income in the tax return only to be able to buy more insurance,” says Nitin Goel, an insurance adviser. If you have declared an income of Rs.9 lakh in your tax return, you can take a cover of up to Rs.90 lakh. Some insurance companies cap the coverage to Rs.25-30 lakh. We feel this cover is adequate for the average buyer. You can buy more if the insurance company allows it.
The policy from Oriental Insurance Company offers these additional benefits
Ambulance charges: Rs.2,000
Funeral charges: Rs.2,500
Education fund: Rs.10,000
per child (max 2 kids below 23 years)
Rider or standalone?
A personal accident cover can also be bought as a rider along with a life insurance policy or a health plan. While these riders are very cheap and convenient to buy, the cover is restricted by the exclusion hidden in the fine print. Akshay Zutshi had bought an accidental death, disability and dismemberment (ADDD) rider with his life insurance policy. But when he lost his index finger in a car accident and was bedridden for more than six months, the life insurance company did not pay anything. “They pointed to the clause in the policy document which said the dismemberment benefit is payable only if I lost an arm or a hand. The disablement for six months and the loss of the index finger alone did not matter,” he says. On the other hand, a standalone personal accident policy offers comprehensive coverage (see graphic). If the insured person loses one phalanx of a finger or part of a toe, he is eligible for compensation. Even temporary disablement compensates the buyer.
Work also determines the premium
The risk that a person is exposed to at work determines the premium of the personal accident cover.
Which policy should you take?
If we have managed to convince you, your next step will be choosing a policy that suits your needs. The chances of fraud in personal accident cover is very high because of the enormous payout ratio. A personal accident cover pays up to 200 times the premium, so there is rampant misuse by unscrupulous elements. This is why insurance companies are hesitant in providing this cover online without the necessary checks. Most insurance companies provide information on these policies on their websites but don’t sell them online. For the same reasons, even insurance aggregator portals are not able to offer these policies through the online channel. Some insurance companies do sell the policies online, but only for a sum assured not exceeding Rs.20 lakh.
Payout also depends on extent of disability
Percentage of the sum assured payable if the insured person loses…
“If a customer visits our website and expresses interest in buying a personal accident cover, an adviser calls back and guides him through the process,” says the spokesperson of a private general insurance company. The personal accident covers offered by PSU insurers are more comprehensive and offer better value for money than those from private companies. We particularly like the personal accident policy from Oriental Insurance Company that charges Rs.4,869 for a fully souped-up cover of Rs.25 lakh (see graphic). What’s more, the policy offers worldwide coverage. So, even if you suffer an injury while travelling abroad, the policy will pay you compensation. The personal accident cover from New India Assurance has similar costs and coverage and is also worth examining.
Mistakes to avoid
The probability of an accident depends on the risk that one is exposed to. The premiums given in the examples in the story are for people working in sedentary jobs and exposed to normal risk. Certain professions, such as construction supervisers, shopfloor workers, travelling salespersons, and security personnel, have higher risks, so the premium will be higher. Incidentally, age is not a factor in accident insurance. The premium is the same whether the buyer is 18 or 58 years old. While buying a policy, be sure that you correctly mention your employment details.
What’s not covered
- A policy will not pay if the death or injury is caused by..
- Intentional self-injury, suicide or attempted suicide.
- Pre-existing disabilities or injuries.
- Accidents during pregnancy or childbirth.
- Accidents under the influence of liquor or drugs.
- Accidents while breaching law.
- War, riots, terrorism and criminal acts.
- Mishaps in adventure sports.
If you are exposed to moderate or high risk, don’t say that you have an office job. If the company finds out that you had given incorrect details of employment, the claim will be rejected. Your social habits and medical history are equally important. If you drink, smoke or like to indulge in adventure sports, mention that in the application form. Any medical issue or disability in the family should also be mentioned. Lastly, be sure that you mention the name of the nominee correctly. Any spelling mistake or variation from the name in the bank account will cause problems while making a claim.