Insurance is a very important financial planning tool for an individual who has dependent family members. Hence, it is crucial to buy insurance judiciously with a good amount of research. When looking to buy life insurance, many people do not understand the basic differences between the various types of policies available in the market. Besides this confusion, they are also unsure if they need to amplify the coverage by investing in multiple policies.
In this article, we take a look at the main differences between a term insurance plan and a personal accident cover and how you can work out an optimum financial strategy that utilises both these plans in the best possible manner.
What is term insurance?
A term insurance policy is a pure protection plan that is offered by almost all life insurance companies in India. It provides insurance coverage to an individual for a specific period of time.
A term plan can be taken for a duration of 5, 10, 20, or 30 years. If the life assured passes away during the policy tenure, his/her family will be offered compensation, i.e., the death benefit under the plan. This way, the life assured is able to secure the family’s financial stability even when he/she is no more. The policy benefits are paid out to the nominee under the policy in the form of a lump sum amount or as regular payments periodically. However, it is very important that the policyholder informs the family about the insurance, so that they do not miss out on the benefits in case of his/her unexpected demise.
Term insurance is the most basic form of life insurance coverage and it offers extensive protection for the lowest premiums. There is no savings component or maturity benefit provided by the policy. So, if you are disciplined enough to make investments independently, it is best to refrain from buying a life insurance planwith a savings component. Instead, buy a term insurance policy for enhanced life insurance protection.
What is a personal accident cover?
Even if an individual acquires an appropriate life insurance cover and a health insurance policy, he/she may not opt for a personal accident cover. You should know that health insurance companies offer the personal accident cover as a rider, and it is very profitable to club this add-on coverage with the base plan. You save considerably on premium and get extended coverage in the bargain.
Personal accident cover, as the name suggests, protects the life assured from accidental injuries and death. It safeguards the individual from financial loss due to his/her inability to work after the accident. This plan is provided as add-on coverage under motor insurance, life insurance, and health insurance plans.
● Motor insurance – A car insurance plan that offers comprehensive coverage has an in-built personal accident cover. This protects the owner/driver of the insured car from accidental disabilities and death. However, the passengers in the vehicle are not offered protection under this cover. The policyholder can opt for a separate add-on cover that safeguards the named passengers in the vehicle from accidents. Personal accident cover can be purchased along with the insurance of a two-wheeler as well.
● Life insurance – In life insurance, this coverage is offered as the accidental death and disability rider that can be opted for at the time of purchase of a policy. The maximum sum assured under this rider can go up to Rs.50 lakh, subject to a maximum of 100% of the sum assured under the base policy. This rider offers tax benefits under Section 80C and 10(10D) of the Income Tax Act.
● Health insurance – In health insurance, the personal accident cover can be extended to the family members of the policyholder as well. Some general insurance companies offer personal accident cover with a sum insured of up to Rs.25 lakh. The policy usually covers all types of accidents, i.e., mishaps such as rail accidents, road accidents, accidents due to terrorist acts or natural calamities, etc. Worldwide coverage is another significant feature of the rider.
Difference between term insurance and personal accident cover
Now that you have a basic understanding of both types of insurance, here is a rundown of the main differences between the two:
● Policy benefits – In case the life assured under a term plan dies during the policy tenure, his/her nominee will be compensated. The benefits are paid out irrespective of whether he/she passes away in an accident or naturally. On the other hand, the personal accident cover will pay out the benefits only when there is death or disability arising out of an accident. In the event of death due to natural causes, the personal accident cover will not pay the benefits.
● Premium – In the case of term insurance, younger customers are offered lower premiums. The cost of insurance increases as the individual grows older. However, in a personal accident cover, the premium for insurance depends on the profession of the insured apart from the age. If you work in a mine or as a technician installing high-tension wires, you are in a high-risk profession as far as insurance companies are concerned. You will then be required to pay a higher premium amount for personal accident cover.
It is important to choose the right level of insurance coverage to protect your family’s financial future. So, you can consider buying a term insurance policy with a personal accident rider to avail extensive coverage. Remember to compare plans between insurance providers to find the most suitable one for your needs.
Source- Forbes India
Date- 7th March 2018