Personal Accident: When Disaster Strikes
Of late, more and more financial planners are advising their clients to purchase standalone personal accident (PA) insurance policies. It is no surprise that they are gaining in significance. The Centre and the Supreme Court Committee on Road Safety ascertained that on an average, 410 Indians died in road accidents every day in 2016 — nearly 1.5 lakh people killed in just one year, a grim statistic, to say the least.
To ascertain whether you need a PA policy as part of your risk portfolio, you need to understand whether it fills a noteworthy enough gap in your financial life. But first things first: exactly what is a PA policy, and how does it work?
As the name suggests, a PA policy helps individuals transfer the financial risks associated with an accident to a general insurance company. Broadly, these risks can be categorised into four kinds: death, permanent total disability (PTD), permanent partial disability (PPD) and temporary total disability (TTD). In exchange for an annual premium, you receive a sum insured. Depending upon the specifics of the policy, a percentage of the sum insured, ranging from 50-150 per cent, is paid out to you in case any one of the above four unfortunate scenarios were to materialise. Notably, the maximum sum insured available for most policies is capped at Rs 25 lakh, with a handful of plans, such as Tata AIG Accident Guard, offering a sum insured of up to Rs 1 crore. Apollo Munich’s Personal Accident Policy offers a sum insured of up to Rs 5 crore under their “premium” option, but only for low-risk individuals.
What kind of accidents do PA policies cover? According to Neelesh Garg, MD & CEO, Tata AIG General Insurance, the list is fairly comprehensive. “They usually cover rail, road or air accidents, injuries sustained in a collision or fall, animal bites, burns, drowning and even poisoning, among others,” he says. However, policy buyers are advised to carefully check the definitions of an “accident” and “disability” before signing up.
What about noteworthy exclusions? There are, expectedly, quite a few. “PA insurance does not cover suicide attempts, HIV, AIDS, criminal breaches of law, accidents under influence of liquor or drugs, pregnancy related claims, and accidents due to war and nuclear perils,” cautions Rakesh Jain, ED & CEO, Reliance General Insurance. He also points out that pre-existing injuries or disabilities are not covered.
Besides the standard benefit of the lump sum pay-outs, some PA policies have bells and whistles attached. These include an ambulance cover, covering of costs of transporting one’s mortal remains, education fund, or family transportation. These so-called additional features are largely nugatory in nature and can end up confusing policy buyers unnecessarily. When selecting a PA policy to meet your needs, it is best to focus on the primary benefits, and view them in light of the incurred-claims ratio (ICR) of the insurer. An ICR exceeding 100 per cent signifies that the insurer is giving away more in claims than it is earning in premiums — not a good sign for the health of the business! Conversely, a very low ICR could signify a larger number of dishonoured claims, inordinately high premium rates, or simply better underwriting on the part of the insurer. Aim for a PA policy that has an ICR of 60-90 per cent. After all, what good is a PA policy that is not likely to pay up when the moment of truth arrives?
Who Needs It The Most?
If you drive long distances to work, or have a field job that requires you to shuttle between meetings all day, you are clearly at a higher risk of meeting with an accident, statistically speaking. “State your profession correctly while applying for PA insurance, because insurers use risk classification depending on your profession, and this affects the premium”, advises Jain. Misrepresenting facts could lead to a dishonoured claim —rendering the act of purchasing the policy moot.
If you have already got a comprehensive health Insurance policy…: If the risks add up, it makes sense to take up a PA policy even if you are covered on the health insurance front. Your mediclaim will foot your hospital bill, but your dependants may suffer if your accident temporarily deprives you of your capacity to earn. “In case of a disablement, wherein the insured is not able to continue his occupation, an accident policy provides a lump sum amount, to help maintain the insured’s current lifestyle”, explains Garg.
Standalone PA Or As A Rider With Life Insurance?
Certain Term Life Insurance plans offer accidental death or disability riders, at a nominally incremental cost. However, it’s worth noting that these riders typicaly only cover Permanent Total Disability — a scenario in which your earning capacity is permanently affected. They won’t tide you over accident-led temporary non-earning phases.
“Since PA insurance is a standalone product, the coverages generally tend to be far more comprehensive. A personal accident policy not only covers permanent total disability, but also temporary total disability, and permanent partial disability,” says Garg.
As with all financial risks, the choice to retain them — or transfer them to an insurer, is a personal one. Consider the overall risks associated with your day to day work, and how they may affect your family if they were to unluckily manifest. You can purchase a PA coverage of Rs 25 lakh for a nominal annual sum of Rs 3,000 to Rs 5,000 in most cases, so go for it if the odds call for it. An unbiased financial planner could assist you in your decision-making.
