Our life is all about unexpected occurrences. Since no one knows what the future holds, we must try to ensure financial security for ourselves and our family. A foolproof financial must always leave some room for an insurance policy.
By far, the most popular and the simplest insurance policy is a term insurance policy. If you opt for a term insurance plan, it will guarantee financial security for your near and dear ones when you won’t be around them anymore.
A personal accident insurance policy, on the other hand, is one which reimburses all your medical expenses in case you meet with an accident. Besides, this plan provides compensation to your family if you end up with a disability caused by the accident or if you pass away. But, natural causes of death are not taken into account in case of a personal accident insurance policy.
In order to choose the most suitable plan for yourself, it is important for you to analyze and understand the difference between the two kinds of insurance policies before you choose to invest in any of them.
Personal Accident Insurance Policy
As we have mentioned before, a personal accident insurance policy proves to be your friend if you are rushed to the hospital because of an accident. It will pay all your hospital bills. In addition, it will ensure financial security to your family in case of your demise or if you are left permanently disabled by the accident.
Accidents happen when you least expect them. The data obtained from the Ministry of Road Transport and Highways shows that deaths caused by road accidents in India rose to about 1.49 lakhs in the year 2018.
So, it is always wise to opt for an insurance plan like this one. Burns, car crashes, accidental poisoning, falls, snake bites and so on are regarded as accidents and are covered by a personal accident insurance plan.
Example: A 30-year-old man met with an accident when a truck rammed into his car. As a result, he suffered from severe injuries and was left with a fractured skull. He needed immediate surgery and the expenses amounted to INR 30 lakhs. But luckily he had a personal accident insurance policy. The sum assured by the policy was INR 50 lakhs for a term of 2 years. It helped him clear off his hospital bills easily.
| Age (years) | Insurance | Sum Assured (INR) | Annual Premium | Medical Expenses due to Accident (INR) |
|---|---|---|---|---|
| 30 | Personal accident insurance | 50 lakhs | INR 13,000 | 30 lakhs |
There are two categories of personal accident insurance plans which are as follows:
- Individual personal accident plan - Under this type of policy, only one person is covered.
- Group personal accident plan - Under this plan, a group of persons are covered. This group may include employers and employees, banks and account holders and so on.
A personal accident insurance plan has the following features:
- The premiums to be paid for this policy are low. The premiums will be deducted from your income under Section 80D, if you opt for it.
- If you chose to buy this policy, you won’t have to go for medical or health check-ups of any sort.
- The sum assured is dependent on your annual income.
- The coverage in case of this policy is available only on an individual sum insured basis.
- This policy covers accidental death and disability caused by accidents. The extent of a person’s disability is also taken into account, i.e., the benefits of this policy might differ if you are left completely or partially disabled for a temporary or a permanent period of time. The options offered are:
- Permanent total disablement
- Permanent partial disablement
- Temporary total disablement
However, a personal accident insurance policy does not cover the following:
- Injuries resulting from self-harm or suicide attempts
- Accidents caused by involvement in criminal acts
- Accidents caused by participation in adventure sports
- Accidents resulting from substance abuse
- Accidental injuries resulting from wars or similar situations, etc.
You can benefit from a personal accident insurance in the following ways:
- In case of death caused by accidents, your nominee(s) will be entitled to receive 100% of the insured sum.
- In case you are left permanently disabled, you would receive 100% of the assured sum.
- In case of a temporary disability, you will receive only a part of the assured sum. But, the amount you receive will depend on the nature of your disability.
- Some insurance service providers will offer additional benefits like children education fund, funeral expenses, transportation expenses, unemployment cover, etc.
But, the greatest disadvantage of this policy is that it does not cover deaths resulting from natural causes or disease. So, let us take a look at Term Insurance plans to see the benefits it offers.
Term Insurance Plan
Term insurance plans are death benefit plans. If you want to provide guaranteed financial security to your family in your absence, you should opt for a term insurance plan. But you must remember that term plans often do not offer maturity benefits. If you survive the term, you won’t receive any money. However, you can opt for certain additional riders if you choose to buy a term plan.
Example:
A 30-year-old man chooses to buy a term plan of INR 2 crores for a term of 70 years. If he passes away for some reason during this period, his nominee(s) will receive the INR 2 crores as assured in the plan.
| Age (years) | Sum Assured (INR) | Annual Premium | Term (years) |
|---|---|---|---|
| 30 | 50 lakhs | INR6,300 | 70 |
The features of a term plan are listed below:
- Term plans offer a high rate of return. The sum assured can be about 15 times the premium you pay.
- They offer a policy period of about 30 to 40 years.
- You can opt for additional benefits known as riders, such as critical illness rider, accidental death benefit rider, etc.
- The death benefit can be paid in a number of ways--- either as a lump sum or in the form of monthly income or a combination of both --- as specified by the policyholder.
- The assured sum received by the nominee(s) of the policyholder can be used for a variety of purposes--- to clear debts, to cover costs for educational and other purposes.
- A discontinuation in terms of payment of premiums would mean that the nominee(s) of the policyholder won’t receive any death benefit.
The benefits of a term plan are:
- You have to pay low premiums.
- Term plans are simple and easy to understand.
- There are several tax benefits associated with term plans.
The downsides of a term plan have been listed below:
- You cannot renew a term policy.
- Term plans do not help you in terms of creation of wealth.
- You have to buy a term policy while you are young. Buying a term plan beyond the age of 65 to 70 years is not feasible due to immensely high premiums.
- Term insurance plans will not be of any use to you if you aim to save money for future plans such as the education of your children or as security in your old age.
You should consider buying a term plan if your income is low and if budget constraints affect you. You must opt for a term plan if you are in need of a huge life cover to secure your family’s future. Besides, if you have taken a huge amount of loan, you can consider buying a term policy.
The Difference Between Term Insurance Plan and Personal Accident Cover
The differences between a term plan and personal accident insurance are :
| Term Plan | Personal Accident Insurance |
|---|---|
| A term plan ensures financial security to the nominee(s) of a policyholder in case they pass away, regardless of the cause of death. | The nominee(s) of a policyholder in this case will receive the assured sum only if the policyholder dies due to an accident. Natural causes of death are not covered by personal accident insurance. |
| Term plans cannot be renewed. | A standalone personal accident insurance can be renewed several times. |
If you opt for an accidental death benefit rider along with this plan, your nominees will receive the amount assured in the rider. But in case you opt for the rider, you need to pay a separate premium for the rider in addition to the premium of the base plan. Besides, in this case, coverage will be lower than in case of a personal accident plan. If you don’t opt for a rider, your term plan will not provide you protection against death or disability resulting from an accident. | The coverage offered is higher than in the case of the amount offered by an accidental death benefit rider. |
| The amount of premium to be paid is low but higher in comparison to the premium to be paid for personal accident insurance. | The amount of premium that you need to pay is lower than what is paid in case you have a term plan. |
| Age is a major determinant of the amount of premium that you need to pay for a term plan. | Occupation is the most important determinant of the amount of premium that you need to pay for this policy. |
Which Plan Should I Opt For?
While buying an insurance policy, you can either opt for a term plan with an accidental death benefit rider or a standalone personal accident policy.
In the case of the former option, you need to pay an additional premium to avail of the benefits provided by the rider. Besides, you will not receive any maturity benefit if you survive. The amount you paid as a premium along with the additional premium for the rider will be lost. The coverage amount will be low in this case.
The coverage offered by a standalone personal accident policy is high. The policy can be renewed several times. The premiums are higher than what is paid in case of accidental death benefit riders. Moreover, natural causes of death are not covered by these plans.
You must always consider the financial requirements of your family before you choose to buy an insurance policy. But if possible you can buy a term plan and a personal accident cover together as it would provide dual protection to your family in your absence. At the end of the day, it’s your decision, but it is not wise to opt for a rider. The coverage offered by a standalone personal accident policy is much higher. Therefore, a combination of a term plan and a personal accident insurance would be ideal.
