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Non Life Insurance - Why you should have a personal accident cover

05 Feb 2013

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You need a life insurance policy to cover the risk of death and a health insurance policy as a cushion against hospitalisation expenses. While most readers are bound to be familiar with these essential covers, very few would have heard of the personal accident cover. Personal accident schemes cover the policyholder against death or disability due to an accident. All general insurance companies offer these policies, but it’s very unlikely that an agent will try to sell you one.

These low-priced policies are not very popular because the agent earns barely Rs 20-30 as commission from selling such a policy. However, you should buy a personal accident policy because it plugs an important hole in your insurance portfolio. Firstly, it will provide financial support to the policyholder if he is disabled after an accident. Secondly, the magnitude of the mishap doesn’t matter; even minor ones like falling off a bicycle and breaking an arm, or fracturing a leg while playing football are covered by the policy. If you thought term insurance policies were cheap, wait till you find out about the premium rates of a personal accident policy. For as little as Rs 225 a year, you can get a cover of Rs 5 lakh. The daily cost works out to about 60 paise.

However, this is the rate for a basic cover from a PSU insurer and will only cover death and permanent disability. If you want enhanced protection, you will have to shell out more (see graphic). Bundle it with other covers One way to get the agent interested is to buy it along with your health or motor insurance. "Since agents get very low commissions, they usually try to bundle the personal accident cover with some other insurance product. However, this doesn’t mean that you will pay a lower premium, though some companies may give you a discount," says Sanjay Datta, head of underwriting and claims, ICICIBSE 0.74 % Lombard General Insurance.

A basic personal accident cover against death and permanent total disability is already built into a motor insurance policy. You can enhance the cover by paying extra. PSU insurers offer a maximum cover of Rs 5 lakh under a personal accident plan. Private insurance companies offer a higher cover and a wider range of benefits, but the premium rates are higher too. You can take a cover of up to 8 times your annual salary. Apart from the basic death and permanent disability cover, you can buy additional protection against partial and temporary disability, even loss of livelihood. "A personal accident policy covers the buyer against costs that can shatter him financially," says Subrahmanyam B, senior vice-president, health & commercial lines, BhartiBSE -0.13 % AXA General Insurance.

Understand terms & conditions It’s important to understand the terms and conditions clearly before you buy a policy. For example, hospitalisation benefit can be availed of only if the policyholder is admitted within seven days of the accident and is hospitalised for at least 24 hours. A fractured leg is a temporary disability, and if you have taken a cover against it, your policy will pay a weekly sum of Rs 5,000 for up to two years. However, this weekly cash benefit is paid only if you are unable to go to work and the payment starts only 60 days after the accident. One also has to submit proof, including a doctor’s certificate for the disability that prevents one from attending work.

Also, be very clear about the definition of disability. When a Delhi-based policyholder lost his index finger in a car accident, the hospital gave him a certificate of 15% disability. Yet, the life insurance company denied his claim because he had a cover against total disability. "The policy document defines the loss of hand as total disability. The loss of one digit, even though it was the index finger, was not covered," he says. Permanent total disability is defined as total loss of sight in both eyes, or total loss of use, or dismemberment of both hands or legs, or one hand and one leg.

Losing one eye is a permanent, but not total, disability. Ask the insurance company or agent to explain the exclusions clearly to you. You may also have a group cover Most companies offer personal accident insurance to their employees through a group cover. However, this is a very basic cover and may not offer the benefits offered by a standalone policy. "I recommend an individual policy only if one can afford it and if his company’s cover is insufficient," says Jayant Pai, head, marketing, Parag Parikh Financial Advisory Services. You can also buy an accident cover with a rider along with a life insurance policy.

However, these riders come with strings attached and don’t offer certain covers. "Since life insurance companies cannot offer anything but life cover, you will not be covered against other damages, such as hospitalisation expenses," says Sanjay Tiwari, vicepresident, strategy and product, HDFCBSE -0.39 % Life. "Riders can never be as comprehensive as a standalone policy," he adds.