Opt for a personal accident policy, not rider

The policy offers more comprehensive coverage than a rider for varying levels of injury and disability caused by accidents

The recent fire at Kamala Mills in Mumbai claimed nearly a dozen lives. About three months earlier, a stampede at the Elphinstone Road railway station had killed 20. While numerous lives are lost every year in tragedies such as these, an even larger number of people also get either temporarily or permanently disabled. A personal accident cover is a low-cost cover that can help a person tide over a financial crisis caused by his inability to earn in the aftermath of a mishap.

While a life insurance policy compensates the family for the death of a policyholder, a health insurance policy (mediclaim) serves as a cushion against hospitalisation expenses. But what happens if someone gets disabled during an accident and can’t earn his livelihood? That is when a personal accident cover from a general insurer comes in handy. “The procedure for buying this policy is minimal and it’s also quite inexpensive,” says Sanjay Datta, chief-underwriting and claims, ICICI Lombard General Insurance. This cover not only insures the policyholder against accidents, but also against a variety of mishaps such as burns, falls, breaking of bones, injuries incurred during natural disasters, among others.

Typically, a personal accident cover from a general insurer offers varying levels of protection. The basic plan covers permanent disabilities, both total and partial. By paying an additional premium, you can also get a cover against temporary disabilities.

The premium rates are quite low. A policy with a Rs 1.5-million sum insured will, for instance, have an annual premium of around Rs 3,000-4,000. Such a policy will include death benefits, permanent total disability, burns, broken bones and hospital cash benefit. 

Besides general insurers, life insurers, too, offer personal accident policies as a rider with their policies. Financial planners suggest that it is better to buy a standalone policy from a general insurer as it offers a more comprehensive coverage. “A standalone cover offers better features and benefits as opposed to a rider. Riders only cover death, partial and total disability. A standalone cover may be more expensive than a rider, but one also gets better coverage,” says Suresh Sadagopan, founder, Ladder7 Financial Advisors. 

Before a person buys a standalone policy, he should understand that the level of payout from this policy varies depending on the impact of a mishap on the person’s earning capacity. The payout is 100 per cent of the sum insured in case of death and permanent total disability. But when there is partial disability, the payout is a percentage of the sum insured. For instance, if a person suffers permanent total deafness in both ears, he may get 75 per cent of the sum insured, while if he loses his eyesight permanently in one eye, he may receive 50 per cent of the sum insured, and so on. 

Before you buy this policy, look at the level of protection it offers against the total temporary disability (something that many riders don’t cover). “Suppose that a policyholder fractures his leg and is unable to work for three-six months. In that case, he will require medical assistance and may not be able to work for a certain length of time. The personal accident cover will provide for cost of medical treatment, but more importantly, it will provide a substitute income for this period,” said Sadagopan. Financial planners say after a person has bought a life insurance cover and a mediclaim policy, he should buy a personal accident cover to complete his insurance portfolio.