You have a large life insurance cover with a term plan to safeguard your family’s financial future. You also have a comprehensive health insurance plan to pay your hospital bills. Your car is insured against damage and theft, while your house is covered against natural and man-made calamities and burglary. Are you missing something? It is quite likely that you don’t have personal accident insurance. In 2013-14, barely 55 lakh individuals bought personal accident insurance. That’s less than 0.5% of the total population of the country and about 5% of the estimated insurable population.
There are two important reasons why a person should buy personal accident insurance. First, India is the accident capital of the world, with a person dying every 90 seconds. According to the National Crime Records Bureau, 3.94 lakh Indians died in accidents in 2012. While more than 35% of these deaths were due to road accidents, people also expired due to train accidents (7.4%), drowning (7%), fire (5.9%), falls (3.1%) and electrocution (2.2%).
The second reason for taking this cover, of course, is that personal accident insurance is unique and provides a cover that no other policy does. A life insurance policy will give a lump sum to the nominee if the policyholder dies and a medical insurance policy will pay the hospital bills if he is injured. But what if a mishap leads to a disability and impairs the individual’s earning capacity?
The number of people injured in road accidents is nearly four times higher than the number of deaths. In 2010, nearly 1.3 lakh people were killed in road accidents in India. However, over 5 lakh were either seriously injured or permanently disabled. Whether the disability is total or partial, temporary (3-4 months) or permanent, the personal accident policy will come in handy. If the policyholder has opted for the benefit, the plan will also pay the medical expenses incurred due to the accident.
Most accident victims are young. In 2012, nearly 60% of the accidental deaths involved people aged between 15 and 44 years. “A young person is more likely to have an accident and injuries than die of an illness,” says Tapan Singhel, CEO and managing director of Bajaj Allianz General Insurance. Yet, a personal accident and disability cover is often missing in the portfolio of the average insurance buyer.
This is surprising because a personal accident cover is not only useful but also very cheap. A cover of `10 lakh costs just about 500 a year. Yet, there are few takers for this essential cover. For every five inquiries that insurance portal Policybazaar.com receives for term insurance plans, there is just one person asking about personal accident cover. “There is very little awareness about personal accident insurance,” says Yashish Dahiya, CEO, Policybazaar.com.
What it covers
Accident insurance covers not just road mishaps. It can be any accident—slipping on the stairs, falling from a height, breaking an an- kle during a football match, receiving burns while bursting firecrackers on Diwali, or getting electrocuted by a faulty appliance. A comprehensive plan covers the policyholder against all such perils. The basic policy will cover him only for death, paying his family a lump sum in case of an eventuality. As we mentioned earlier, the cost of this base cover is extremely low at `500 a year for a sum assured of `10 lakh.
If the policyholder takes a cover against disability, the premium will be a little higher. However, he gets the coverage for any disability due to the accident. This can be partial or total, temporary or permanent. A fractured leg that prevents you from moving is a total disability, but 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 policy may also be extended to include medical expenses. Usually an add-on benefit with the basic policy, it pays for any hospitalisation as a result of an accident. However, the cover is a little different from that offered under a regular health insurance plan. A mediclaim policy is an indemnity plan that reimburses the hospitalisation expenses. A personal accident cover, on the other hand, will pay only for the treatment of injuries caused by an accident. The payout under this head is about 10-25% of the base sum assured. So, if you have a `10 lakh cover, you can opt for a medical extension of 1-2.5 lakh.
Also, there are some fixed benefits offered by private insurers, such as a children’s education allowance and ambulance expenses. Obviously you have to pay an extra premium for all the frills. Like any insurance policy, there is a list of exclusions as well (see What’s never covered).
What it costs
While the cost of a personal accident cover is low, a young buyer may get confused by the premium rates offered by online term plans. For instance, if a 30-year-old buys a term plan of `50 lakh, it will cost him barely 5,200 a year. If he adds a personal accident rider of `20 lakh, the cost will be around 7,500 a year. Many buyers may think it worthwhile to simply enhance the term plan cover to `70 lakh at an even lower cost. However, the two situations are not comparable. The term plan will not offer any payout if the policyholder suffers a disability due to an accident. This is why Kuldeep Kaushik (see picture) has taken a `30 lakh accidental death and disability rider along with his term plan. So, in case you plan to enhance your life cover, try a combination of a term plan and personal accident policy to make the coverage costeffective and comprehensive.
Unlike other policies, the premium of a personal accident cover does not vary across ages. However, your employment will have a bearing on the premium. The risk to your life and safety depends on the field of work you are in. A sedentary worker will have to pay a lower premium compared to a factory worker or a CEO who is a frequent flyer. For instance, for a comprehensive cover, Oriental Insurance charges 1,500 for a `10 lakh cover if you fall under the ‘normal’ risk category, but if you are a ‘high risk’ customer, the premium is higher at `2,250. Don’t feel bad if you are a fre- quent flyer because some categories, such as defence and police personnel, trapeze artistes and adventure sports enthusiasts, are not covered at all.
There’s good news for discount hunters. Many insurers give concessions if you opt for a two-year policy than the usual one-year contract. There is also a discount on the premium if you include your family. However, non-earning members will not get too high a cover. The spouse is usually eligible for a cover of up to 50% of the base sum assured, while children are covered up to 20%.
Rider or standalone policy
Accident cover is available in many forms—as a rider with a life insurance policy, as an addon policy to your motor insurance and home insurance, as a groupinsurance cover from your employer, and as a standalone plan. However, most riders with life insurance policies provide only a basic accidental death and permanent disability protection. Ask Mohnish Gupta, a Delhi-based businessman, who lost his finger in an accident. His accidental death and dismemberment rider from the lifeinsurance company did not pay him a penny. “The terms and conditions of the policy said it would pay only if the whole hand was dismembered,” he says.
On the other hand, a standalone comprehensive policy covers various kinds of losses, including income loss, temporary disablement and hospitalisation. They are not only more comprehensive, but can also be customised for the buyer. “The accident cover should be at least 5-10 times your monthly salary. An employer who is trying to cut cost will not allow you to choose your cover size and what is provided as default is often insufficient,” says Sanjay Datta, chief, underwriting and claims, ICICI Lombard General Insurance. “Typically, a group plan covers only the employee, while an individual accident plan can be extended to cover immediate family members at a nominal premium,” adds Amarnath Ananthanarayanan, CEO and managing director, Bharti AXA General Insurance.
Also, the cover offered by a rider is linked to the base sum assured and cannot exceed a certain level. If you have taken a term plan of 50 lakh, the rider will not give you a cover of more than `25-30 lakh.
Moreover, riders cost more than standalone policies. “A rider attached to a life insurance policy is more expensive than a standalone policy from a general insurer,” says Sudhir Sarnobat, CEO, Medimanage. com, an insurance brokerage. Other benefits, such as a 5% cover bonus at renewal after every claim-free year up to a maximum of 50% or an option to escalate the cover size on renewal, are also not available in a rider.
How and where to buy
The low ticket size of a personal accident policy means no one wants to sell you one. Some insurance agents tag it along with a life or car insurance policy. Banks sell it when you open an account or get a credit card. If you are price conscious, PSU insurance companies offer the best value. For instance, while a `5 lakh death and disability cover from a PSU insurance costs `985, a similar plan from a private insurer comes for 1,500. PSU insurers also offer greater customisation, allowing you to keep or drop a particular benefit. In comparison, private insurers are more rigid about product packaging.
On the flip side, PSU insurers have placed caps on the coverage and most don’t give a cover of more than `10 lakh. The eligibility is computed on the basis of your monthly pay cheque. New India Assurance restricts the maximum sum assured to a 72 months’ income, subject to a maximum of `10 lakh. Oriental Insurance offers a cover of up to `25 lakh. Comparatively, private insurers are more generous, with some offering accident covers of up to `1 crore. “Many buyers choose privateinsurance companies because of the add-on benefits they offer,” says Sharad Mathur, senior vice-president and national head (agency, digital and alternate channel), SBI General Insurance.
Personal accident insurance is very cheap, but also very important. Buy it before it is too late.
Source : The Economic Times
Date : 5/5/2014