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Personal Accident Insurance: Rider vs Standalone Policy

Not all accidents result in a death.

In fact, with rapid advancement in medical science, many accidents do not result in "loss of life". Instead, loss of limb(s) and loss of income are more common. However, our normal health and life insurance policies do not cover such losses.

This is where an accident insurance policy comes into the picture.

For example, a person confined to his bed for six months due to accidental hip fracture, will get no financial support from his health insurance policy (except for the hospitalization expenses). Nor, will his life insurance policy pay him anything, as he is still alive. So how can he manage the monthly expenses, till he is able to resume his job and start earning?

To protect against such unfortunate eventualities, buying a personal accident insurance policy is a prudent strategy.

Moreover, it doesn't have to be a major or motor accident. Even simple mishaps like falling from your bicycle and breaking your leg are covered.

This is a pretty simple and straightforward policy. So, I will come to policy features later.

More important aspect about accident policies is "where to buy"; rather than "what to buy".

There are TWO options to buy insurance cover against the risk of an accident, viz:
a) Life Insurance Companies: As a rider or add-on with a Life Insurance Policy 
b) General Insurance Companies: A standalone Accident Insurance Policy

Let us compare the two alternatives:

1. Extent of coverage
Standalone policy typically provides cover for a much wider range of issues vis-a-vis a rider. For example, riders would probably not cover partial disability or loss of body parts. They may pay claims only in cases of death or permanent disability. In other words, standalone policy has a comprehensive cover; whereas cover with riders is somewhat restricted.

2. Premium
For a given sum assured, a rider is much cheaper than the standalone policy. But it won't be an appropriate comparison, as the standalone policy provides wider coverage than the rider. Besides, whichever option you choose, your annual premium payout will probably be less than buying a pizza meal for your family... accident insurance is really cheap.

3. Short-term vs Long-Term
Life Insurance Companies issue policy that typically ranges from 10 to 30 years. Whereas, policies issued by the General Insurance Companies are for around 1 to 3 years only.

4. Premium variation
In a life insurance policy, the premium does not change. So, with a rider, your cost is fixed for the entire policy term of 10 to 30 years. On the other hand, standalone policy may see a change in the premium payout every 1 to 3 years, when the policy is renewed.

All you wanted to know about the Personal Accident Insurance Policies.

5. Restriction on riders
There are certain restrictions specified for the riders. For example, the insurance cover for any rider cannot be more than the life insurance cover. Or, the total additional premiums for riders cannot exceed 30% of the basic premium. Such conditions may put a limitation on the type of accident cover you want to buy.

6. Riders lapse
Suppose you surrender your life insurance policy. Then your accident rider cover too lapses, as the two are clubbed. Thus, you don't have the flexibility to continue with the covers you want and discontinue those that are no longer necessary. Whereas, having independent policies ensure that no two insurance covers adversely impact each other.

7. No tax benefit
Since the rider premium is clubbed with life insurance premium, it gets the benefit of tax deduction u/s 80C. However, premium paid on the standalone policy is NOT eligible for any tax benefit.

The additional premium for a standalone policy would at best be Rs.500 to Rs.2000 more than the rider premium. This difference is not significant, given the fact that you get a much better policy in terms of coverage and flexibility. Therefore, considering all the pros and cons, a standalone accident policy is definitely a better choice than the rider.

Unfortunately, however, given the ease of adding a rider to a life insurance policy, most people opt for the rider. Sacrificing effectiveness for convenience is not a good idea!

Salient features of a standalone Accident Insurance Policy

a) This policy provides insurance cover against accidental
   - death
   - loss of limbs, eyesight or hearing
   - burns
   - broken bones, etc.
b) The loss of limbs, eyesight or hearing may lead to Permanent Total Disability, Permanent Partial Disability or Temporary Total Disability. Based on the extent of injury, a pre-specified percentage of the Sum Assured is paid as a claim.

c) Some policies even pay daily cash for the period you are hospitalized due to an accident and also reimburse the ambulance charges; of course, on payment of an additional premium.

d) Unlike life or health insurance, premium for accident insurance is "age-independent". Instead, your profession would determine the premium cost. A person working in an office would probably get a cheaper cover, than someone working in a mine or a factory.

e) This policy, logically speaking, does NOT require any medical check-ups.

f) As mentioned earlier, premium payable on a standalone Personal Accident Policy DOES NOT enjoy any tax breaks.

g) Accident policy cover is applicable worldwide. However, the claim amount is paid in Rupees.

Needless to mention, to avoid disappointments and disagreements later, read the terms and conditions thoroughly before you sign on the dotted line.

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