Explainer | Personal accident insurance: How does it work?

Most people associate ‘accident’ with vehicles and the injuries if one is hit by them. But, an accident can be situations such as snake bites, electric shocks, drowning, injury by fire or a fall at home.

In May 2019, an Insurance Regulatory and Development Authority (IRDAI) Working Group proposed that home insurance policies must cover accidental deaths due to gas cylinder explosion for a reasonable amount.

Almost 4,000 lives are lost every year in India due to gas cylinder or stove blasts. More than a lakh individuals die in road accidents in India every year. The list can go on. Accidents happen and one can’t avoid emotional loss and the trauma arising out those accidents.

Personal accident insurance policies offer financial protection to the insured person in case of accidental death, or partial or total disabilities arising out of the accident. A personal accident cover accounts for many types of accidents, in addition to those caused by a vehicle hit.

Many life insurance buyers purchase accident disability cover along with term life insurance cover. This additional benefit pays for specified sum assured in case of death or permanent disability of specified nature arising out of an accident.

The cover is generally priced at Re one per thousand sum assured. Though it is easy to purchase and offers some extra sum assured in case of an eventuality, experts advise considering purchasing standalone personal accident covers offered by non-life insurance companies.

Personal accident insurance policies offer a wide array of benefits comprising coverage for accidental death, accidental total or partial disability, and temporary total disability. Depending upon the benefit you choose the premium changes.

Some insurers offer many additional benefits at an extra premium. These would include hospital cash benefit, hospitalisation expenses reimbursement, EMI payment cover among others.

For example, if you opt for a comprehensive option, many insurers will offer you temporary total disability benefit that would pay a fixed sum per week for temporary total disability arising out of the accident. This money can be used for treatment or to pay for other expenses including equated monthly instalments (EMI).

Chola MS General Insurance gives you the option to purchase personal accident insurance along with terrorism covers. Insurers such as Tata AIG and ICICI Lombard offer personal accident insurance policies that pay for a fixed sum per month instead of lumpsum money in case of an eventuality. Such customisations make a case for standalone personal accident insurance cover.

The premium does not change with the age of the insured person. However, depending on the occupation of the insured person the premium is loaded. For a person employed in a factory, the premium may be 20 percent more compared to an individual employed in a desk job.

For example, Bajaj Allianz Personal Guard – accident health insurance policy charges Re one for ‘risk class I’ person for wider cover, whereas a ‘risk class II’ person is charged Re 1.25 for the same cover.

Personal accident insurance policies issued by the non-life insurance companies are benefit policies. They pay a fixed sum on the occurrence of the event. However, there may be some add-on features that would reimburse the actual expenses subject to overall limits.

For example, expenses incurred on account of hospitalisation caused due to an accident are reimbursed on actual basis. And that component of the policy works like any other health insurance policy. Insurers though issue a long list of conditions covered and the payouts as a fraction of sum assured; insurance buyers, however, must understand that the insurer’s liability is restricted to the maximum sum assured payable.

Some auto insurance policies offer personal accident insurance cover. They are optional in nature. The embedded personal accident insurance cover pays the individuals if they die in an accident or are disabled in an accident while travelling in an insured car. If the car owner or his driver meets with an accident otherwise, then the claim is not payable in case of such covers.

Personal accident insurance policies cover accidents taking place worldwide unless it is specifically excluded. Each personal accident insurance policy has a list of exclusions. Investors must read through them. Some of these include participation in wars, participation in adventure sports, serving in the armed forces, being under the influence of drugs or alcohol, performing duties as a crew member on any aircraft. Some personal accident insurance policies exclude losses arising from riots and acts of terrorism.

Most insurers insist on financial underwriting while issuing personal accident insurance covers, especially for large sum assured. In other words, the insurance company will ascertain how much sum assured you can be eligible for, depending on your income. The insurer may ask for salary certificate, income tax return to ascertain the same.

Despite the long list of exclusions and no tax benefits attached to the premium payable, it makes sense to buy personal accident insurance policies given the rich coverage they offer. More importantly, once you buy a policy keep renewing it every year, as it fetches no claim bonus in the form of an additional sum assured.

[“source=moneycontrol”]