Personal Accident: A must-have cover - by Raj Pradhan

One of the best articles on insurance I have read in a long time.

About 0.15 million Indians died on the roads and over 0.3 million were permanently disabled in 2010. Life and physical abilities are irreplaceable but personal accident insurance, available at a low price in India, can at least relieve the monetary burden—as long as you have the right cover. Raj Pradhan explains what you really need.

Charu Khandal, an animator with Shah Rukh Khan’s Red Chillies Entertainment, had just celebrated with close friends and family in Mumbai after the team she headed won a national award for the special effects in the movie Ra.One. As she was headed home in an auto rickshaw, she was hit by a speeding Honda City car driven by a drunk driver. According to the doctors treating her at Kokilaben Dhirubhai Ambani Hospital, the cervical bones in her neck got fractured and there are severe injuries to the spinal chord. Doctors have termed her as ‘indefinitely paralysed’. According to her family members, over Rs6 lakh have already been spent in the first 10 days, with Rs3 lakh-Rs 4 lakh going towards a neck surgery. Charu was full of life; is extremely talented and loved her job absolutely. She didn’t take any breaks while working on Ra.One. Bad things can happen to good people.

The family has to fight a lonely battle. The financial distress caused to the family is immense. Lifetime savings meant for a retired life can drain away rapidly with just one such accident. A mediclaim policy of Rs 5 lakh cover would be insufficient, but at least a good start. The annual premium for Charu would have been just Rs 6,000....

But if Charu and her family were financially aware, she would have had another useful policy, which would have alleviated her family’s financial anguish somewhat. And that is a personal accident (PA) policy from a general insurance company. An annual premium of merely Rs 500 would have covered accidental death (AD) and accidental disability benefit (ADB) of Rs5 lakh. Think about it: Rs 500 is something a couple spends for a dinner in a ordinary restaurant these days. .. According to insurance industry sources, “When someone has been left completely paralysed and is not fit for engagement in any occupation, the policyholder will be paid out the benefit under the permanent total disability (PTD) resulting from an accident, which is 100% of the sum insured (SI).”

If Charu had both mediclaim and PA, she could have claimed from both the policies. The lesson here is that even if a single person does not need life insurance due to lack of dependents, PA or mediclaim is needed, unless you come from an extremely wealthy family. With medical inflation, treatment at high-end hospitals is a luxury that even upper-middle class families cannot afford unless they are covered by health insurance. Do we want to impose financial hardship on our family during our lifetime or after death?  Term life, health and PA policy are vital in today’s world. The best part of a PA policy is that the premium does not increase with age and the policy can run from the age of five years up to 70 years. There may be a case to extend the PA policy beyond 70 years just like mediclaim is now offered for lifelong renewal. PA policy is offered from SI of Rs 1 lakh to Rs1 crore. It is a good deal for the young or old, single or married, rich or poor. What are you waiting for ? 

Accidents happen at unusual places and in unusual ways. A few days ago, in Mumbai, a woman traffic constable, travelling by a local train at 5.30am, was severely injured in her face after a stone flung at the train hit her. The stone narrowly missed her eye; but in a similar incident a few months ago, another person lost his eye and in yet another incident one unfortunate person lost his life. People travelling in local trains during rush hours are susceptible to injuries while hanging on to the footboard for dear life. Loss of one eye is considered permanent partial disability (PPD) and would have fetched 50% of the SI.

The chances of anything going severely wrong may be miniscule, but if it happens, there is a 100% financial impact. The value of a PA policy, which does not cost a bomb, is just immense. In many cases, the disability is temporary, but it can prevent you from going to work. A PA policy can give 1% of SI up to a limit of Rs 5,000 per week for 100 weeks, if you paid the premium for temporary total disability (TTD). If you can transfer the financial risk of temporary or permanent physical disability to someone else, why shouldn’t you? A PA policy will work not just within India, but even when you are travelling abroad. Ensure that you understand what it covers, what are the add-on features, exclusions and the fine print.

What Does PA Cover?

‘Personal Accident’ is a misnomer as the benefits under different policies can vary hugely. Some policies cover only AD. Others may also cover ADB, which itself can vary. Go for the one which covers PTD, PPD and TTD. Here is a brief description of each.

Accidental Death (AD): Covers the insured in case of loss of life from an accident up to 100% of the SI. In case the insured had life insurance cover, the nominee can get payment from both life and AD cover.

Permanent Total Disablement (PTD):  Pays  100% of the SI if bodily injury results in permanent total disablement due to an accident. For example, loss of two limbs, two eyes, two feet, one hand and one foot, one hand/foot and eye is PTD and will pay the insured 100% of the SI. e.g. Bharti AXA Smart Individual Personal Accident Policy pays 150% of SI for PTD, while Bajaj Allianz Personal Guard— PA policy offers 125% of SI for the PTD.

Ensure that your policy covers not just detachment of hand/feet, but also loss of use of hand/feet. You don’t want a policy with restrictive wordings.

Permanent Partial Disablement (PPD):  The payout will be a certain percentage of the SI, depending on the severity of the accident and policy terms. 

Temporary Total Disablement (TTD):  It pays a weekly benefit up to a maximum of 100 weeks, if an accident causes disablement that prevents you from carrying out your usual occupation. It usually pays 1% of the SI per week, subject to a limit, like a maximum of Rs 5,000 per week, depending on the insurance company (subject to the salary of the person). e.g. IFFCO-Tokio Individual Personal Accident Insurance Policy pays up to Rs 6,000 per week as TTD benefit. 

According to Arvind Laddha, Vantage Insurance Brokers and Risk Advisors, “Buying PA instead of life insurance riders are an advantage due to wider definition of disability. Moreover, we have seen most claims under PA policy coming under TTD and, hence, it is a feature worth taking even with additional premium. In most accidents, the insured misses work and, hence, they can claim loss of wages under TTD.” 

PA policies are issued as fixed benefit policies whereby specified sums are paid on the occurrence of specified events. This payout is not related to the expenses incurred. These events could be death or disability. We have the cheapest personal accident cover in the world. The maximum one would pay for PA insurance in India for someone engaged in sedentary work would be Rs100 for a Rs1 lakh cover.

The premium for PA policy may not change by age, but occupation matters! Insurance companies classify occupation as normal, medium and high risk. Those in high-risk occupations, like circus, jockey or mining, going in for Rs5 lakh SI, will have to pay a premium of about Rs1,000 for a PA policy. 

For a medium-risk occupation, like manual labour, premium payment will be 50% higher than that for a low-risk occupation. If you change your occupation, you need to inform the insurance company so that they can decide the impact on the premium.

Do you ride the life insurance riders?

You have a choice of buying PA policy (from General Insurance company) or taking riders of AD and ADB along with life insurance policy. The policies issued by life insurers guarantee coverage during the entire tenure of the policy, whereas non-life companies in rare situations may not agree to renew the policy after the policy tenure ends. 

The premium for life insurance riders is also locked for the policy term, which can be up to 30 years, while the premium of PA policy may increase based on different factors.

Choose the right term life insurance without thinking about the riders. As such, most online term plans,.....either do not offer any riders or may just offer the AD rider. 

Are life insurance riders cheaper than a PA policy (from General Insurance company) ? 

If we consider an offline term plan like SBI Life Smart Shield, there is not much of a price difference. The total premium for riders of AD and ADB is Rs 450 as against a PA policy which will charge approximately Rs 500 for Rs 5 lakh SI. Moreover, the ADB rider  in this example covers only PTD, which is also true for many of the life insurance riders. The PA policy for the premium of Rs 500 will cover PTD and PPD. (So it is better to buy it from Gneral Insurance companies...why? probably because GI Co. specializes in PA).

The rider add-ons make you eligible for deductions. For instance, if you opt for the AD rider, you can claim deductions under Section 80C on the premiums paid. (In other words stand alone PA is not eligible for 80C). Unfortunately, there is no tax benefit for the premium paid under a PA policy, but look at the special benefits of the PA policy.

The hidden benefits in a PA policy

Most PA policies cover PTD and PPD, but please check it out specifically. ICICI Lombard Personal Protect–PA policy covers only PTD and, hence, it is clearly at a disadvantage. Pay close attention to what the PA policy covers and the important add-on features available at an extra premium. Also, understand what it does not cover. PTD and PPD are clearly defined in the policy tables.

The definitions of these tables may be narrow in some cases. If so, it means that in such cases your injury may not be covered. This can be a grey area.

You can file a claim and, on verification, the company will reimburse you as per the claim structure defined under the policy. Look for policies which specify how the company will handle every condition and do not make any assumptions. If they are silent about it, or they are unwilling to put anything in writing, look for another policy with clearer wordings. 

According to Arvind Laddha, “If someone has serious permanent injuries which do not appear in the policy tables of the PA policy covering PTD and PPD, the insurer will pay based on the medical evaluation of the insured. Of course, it helps if the policy wording clearly specifies that the insurance company doctors will evaluate the kind of permanent disability. Detailed wordings in the policy also signify that the insurance company is interested in paying claims and not just selling policies.”

Bajaj Allianz Personal Guard Wider Plan specifies the following: “If your PPD is not listed in the table, then we will pay a proportion of the SI decided by our medical advisors according to the degree to which your normal functional physical capacity has been impaired permanently.”

L&T my:health personal accident insurance specifies the following for any permanent disablement not in the table: “Percentage as assessed by panel doctor appointed by the company.” These are important clauses as they give hope to the insured that they will get some reimbursement.

Akshay Mehrotra of policybazaar.com adds, “Insurance companies, in recent years, have reported an increase in the number of fake claims; statements like these are kept to ward off such claims. A claim, which does not look clean to the insurer, is referred to a few other empanelled doctors who help with the correct decision-making of the final level of disability.” 

TTD is an important feature available in a PA policy as, in most cases, your accidental injury may not be classified as PTD or PPD. It does come at an additional premium, but it may be well worth paying for. Some PA policies do not offer  temporary total disability (TTD) . Check your policy.

Medical Expenses Benefit (MEB):  It is worth going for this feature for the value it offers compared to the marginal increase in the premium. If you just had a fracture which does not   prevent you from attending work, it does not qualify as PTD, PPD and TTD. If you had opted for MEB, it will help defray some of the medical costs you incurred. 

Arvind Laddha points out that “MEB is a good feature as minor accidents may not need hospitalisation and, hence, nothing can be claimed under mediclaim. MEB will pay up to a certain limit, which will help with minor medical expenses due to the accident. If there is need for hospitalisation and mediclaim covers partial expenses, MEB can try to cover the remaining. If mediclaim covers all medical expenses, then MEB cannot be used.”

Hospital Confinement Allowance (HCA):  This is an optional feature offered by some insurers (by paying additional premium) which may or may not be availed. It usually pays Rs1,000 per day for a maximum of 30 days’ hospitalisation in a year. 

Broken Bones, Burns:  HDFC Ergo Accident Protection Plan covers PTD and TTD which pays Rs3,750 per week up to 52 weeks with a deductible of one week. The Plan pays for broken bones up to Rs 50,000 depending on the location of broken bones as given in the policy table. The Plan is offered for SI between Rs15 lakh and Rs75 lakh. The annual premium for Rs15 lakh SI is Rs3,028.  

HDFC Ergo Revive Personal Accident Plan offers cover for broken bones up to Rs 50,000 and for burns up to Rs25,000 as per table. The annual premium for Rs 5 lakh cover is Rs1,201. It does not cover TTD.

Apollo Munich Individual PA–Premium covers broken bones for 20% of SI up to Rs1 lakh. The annual premium for Rs5 lakh cover is Rs1,230. Even if your PA policy does not cover broken bones or burns, the MEB feature can help to get reimbursement for accident expenses.

Children’s Education Benefit:  These are minor benefits offered by some insurers like IFFCO-Tokio, Bajaj Allianz, New India Assurance, National Insurance, United India, Reliance General, Apollo Munich; it should not be the deciding factor for a PA policy. It usually pays 10% of SI up to a   maximum of Rs5,000 for one dependent child or Rs10,000 for two dependent children.

Apollo Munich pays 10% of SI up to a maximum of Rs20,000 for both PA–Standard and Premium. The premium for Rs5 lakh cover is Rs674 for the Standard Plan.  

Last Rites/Transportation Expenses: This is another minor benefit offered by most insurers; it should not be the deciding factor for a PA policy. It usually pays 2% of SI or Rs2,500, whichever is less. Bajaj Allianzpays lower of 2% of SI or Rs5,000 while Apollo Munich pays lower of 2% of SI or Rs10,000. 

Read the Fine Print

Excludes certain professions or activities – Many PA policies exclude armed forces, paramilitary forces, professional sports persons, hazardous sports (bungee-jumping, jet-skiing, para-gliding, etc), merchant navy, airline pilots, off-shore workers (oil rigs/drilling platforms). Declare your occupation and check specific sports activities to confirm if the policy will cover you. 

Terror Attack – You can try to negotiate for covering terrorism attack, but it may be easier to do so for group policies rather than individual policies. 

ICICI Lombard Personal Protect includes terror attack cover while Tata AIG Accident Guard excludes terrorism. 

Some policies do not specifically exclude terror attack and, hence, you may assume that it implicitly covers terror attack. Predictably, most policies offer you virtually no cover against war or Bhopal-like disasters.Curious Case of Divya Bharati On 5 April 1993, Bollywood actor Divya Bharati lost her balance and fell to her death under mysterious circumstances. Her mother lodged a death claim with the Life Insurance Corporation of India (LIC). The death claim was settled but the double AD benefit was not given. The Maharashtra State Consumer Disputes Redressal Commission has passed an order dismissing an appeal by her mother against LIC. The Commission said that LIC had repudiated the claim on the basis of the exception clause in the policy which provides that the insured is not entitled to double AD benefit for intentional injury, suicide bid, death under influence of liquor or drugs. It shows that accidental death claim is more stringently scrutinised than other kinds of death claims.

Moneylife Survey on Accident Cover

Our survey on Personal Accident (PA) policy received responses from 574 readers over half of whom have purchased a PA policy. Many have purchased life insurance riders offering Accidental Death (AD) and Accidental Disability Benefit (ADB). They are missing out on the add-on cover offered by PA policy. It is also possible that life insurance agentshave been successful in selling riders along with the insurance policy.

Some 60% of the respondents think that it is better to buy a PA policy than opt for riders like AD and ADB. 27% can’t say whether this is true or not. It means that some readers are not clear about why PA is a better option. (In other words PA is better than a rider with a life inusrance company.)

Half of the respondents are correct in answering that PA policy premium does not change with age. It is heartening to know that two out of three respondents believe that PA policy is good value for money.

As many as 69% of the respondents were not approached by a general insurance agent to sell a PA policy . This may be due to the fact that PA policies fetch low commission, unless they are sold in conjunction with amediclaim policy. You have to ask for it. 
http://www.moneylife.in/article/personal-accident-a-must-have-cover/25730.html , May 17, 2012