 "Insurance")
Accidents are common nowadays. A lady walking back from work lost her foot when a tree branch fell on her. A young executive fell from a train and was bed-ridden with partial paralysis. There was a recent incident of spinal injury to a visitor enjoying a ride in a theme park. Such things can happen to anyone, anytime.
Accidents not only cause physical damage but financial distress too. Many cases need hospitalisation and may lead to loss of income due to inability to work for short or long spells. A health-insurance policy pays for hospitalisation; a life-insurance policy pays in case of a demise.
However, what about expenses concerning permanent physical disability or a total temporary disability? How would it affect the finances of such accident survivors?
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PERSONAL ACCIDENT COVER PROVIDES:
COMPREHENSIVE HOME INSURANCE COVERS
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Personal-accident (PA) policy can provide financial assistance in such situations. It covers both death and disability. While the accidental-death benefit (ADB) is a rider available with most life-insurance policies, payment is only in case of death. In case of disability, partial or total, temporary or permanent, only a personal-accident policy will prove of utility.
The PA policy has four components. These are death, permanent total disablement (PTD), permanent partial disablement (PPD) and temporary total disablement (TTD). The death-cover component is the most basic of covers. The other components can be added as required.
PTD comes into force on complete and irrecoverable loss of body parts. In such cases 100 per cent of the sum assured is paid. This amount helps survivors obtain prosthetics to aid regular living and make changes in one's home to support the altered physical status. In PPD cases, payment is based on percent of total sum assured. These percentages are pre-defined. For example, the loss of a finger would be 5 per cent of the sum assured; the loss of an arm, 65 per cent. In TTD, policies pay a weekly compensation for the period the injured is unable to work, starting after 60 days of the date of the accident. A person with multiple fractures due to some accident would not be able to attend work for 8-12 months. The weekly amount paid out would support him during this period. The maximum would be Rs 15,000 a week depending on policy coverage and present income.
These policies also pay certain, pre-defined, amounts for medical expenses. So expenses for a fracture, which requires no hospitalisation but has resultant expenses, can be claimed under this policy. But this should not be seen as the core benefit of this policy as the amount in question would not be very much larger than those mentioned earlier.
The factors that influence premiums in a PA policy are occupation and income level. Age does not play a role here.
Apart from one's health and life, the greatest tangible asset a person has is a house. Any damage to the structure or contents could be financially devastating. Recently, actress Sridevi's home was destroyed by a major fire. The family had to shift to another location till restoration was complete. On July 26, 2005, an unusual cloud-burst unleashed immense damage, in Mumbai. Many homes were flooded and contents damaged beyond repair. How does one recover from the financial blows of such incidents?
A comprehensive home-insurance policy is the answer. A standard such policy has two parts. The first covers the structure; the second, the contents. The cover for the structure is based on built-up area and cost of reconstruction per square foot in that locality. This can be higher if premium material such as marble or parquetry is utilised. The cover is not based on market value of the property but re-instatement value. It provides for sufficient resources to rebuild a structure if damaged by calamities covered under the policy, but does not suffice to purchase new property in the same locality at market rates. Calamities covered are fire, earthquakes, storms, cyclones, riots, explosions, etc. Acts of terrorism are usually covered only on an extra premium paid.
You can also avail of an alternative-accommodation-cover as an add-on. This would provide alternative accommodation expenses for up to 180 days, subject to a maximum. If your entire building or housing complex has cover for the structure, you need not take one separately. You would have to purchase a separate cover for the contents of your home, however.
Contents of a place are covered based on current market value and depreciation. There are sub-limits for types of contents such as jewellery, electronic goods, plate glass, etc. Cash, bullion, antiques, shares and property documents are usually excluded. The damage to goods could be because of fire or allied perils, or theft and burglary. There is a difference between burglary, theft and larceny as defined in the terms and conditions. Larceny is when a known person within the premises has pilfered belongings. Theft and burglary are covered as standard inclusions, but larceny would be an add-on, if at all available.
You can also look for such add-ons as public liability and liability to domestic staff. If a fire in your house has caused damage to the neighbour's property, the public-liability clause will come into play. If your domestic staff is injured or dies while working on your premises, the liability-to-domestic-staff clause helps.
Two exclusions are:
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If you have a home office you might not be able to get a home-insurance policy, or one would come with major exclusions.
- Losses if a house is unoccupied continuously for long periods: 30-60 days, without prior intimation to the company.
This policy is also available at a substantial discount if you purchase it for a longer term such as 5-10 years.
Insurance is a mechanism of transferring and spreading out risk. What you cannot bear financially is transferred to a pool where the law of large numbers and the laws of probability come into play to provide for the unfortunate few for whom the event happens to have turned out to be a reality. Both these policies can help you save financial assets by transferring risk to the insurer for a small premium. If these policies are not in place, you might end up dipping into your capital accumulated for your life goals to cover such losses. This would impact chances of you achieving your financial goals in time. These polices cannot be replacements of life or health insurance policies, nor should they be ignored for want of tax benefits.
Source: The author is Chief Financial Planner, ABT Capital Advisors
