Know what you own, and know why you own it
— Peter Lynch
It is important to do your homework before making an investment decision. Often, while researching insurance products that would help their families in their absence, most householders get confused as to which insurance policy they should opt for – term life insurance or personal accident insurance.
This short piece discusses the pros and cons of both plans and how and when are they useful with the help of real-life examples.
Shikhar has invested in a term life insurance plan that provides a cover of Rs 1 crore.
Rajiv buys a personal accident cover that provides a cover of Rs 1 crore.
Abhishek buys both term life insurance and personal accident policies, which provide a cover of Rs 1 crore each.
However, just like any other Indian living in an urban city, these three are prone to fall victim to sudden circumstances that are beyond their control:
- At age 42, Shikhar is involved in a road accident and loses the use of his left hand
- At age 55, Rajiv has a heart attack that leads to his unfortunate death
- At age 51, Abhishek sustains a spinal injury in an accident and loses the use of both his legs; at the age of 54, he passes away due to weakened immunity resulting from his accident
Both Shikhar and Rajiv did not get any coverage from their respective policies but Abhishek gets coverage from both his policies. Read further to know why and how?
- In Shikhar’s case, the term insurance policy provides coverage only in the event of his accidental or natural death and not for disabilities caused due to an accident.
Total Coverage Received = Rs 0
- In Rajiv’s case, his family is left without any money because the personal accident cover does not pay for natural death. It only pays for permanent partial disability, temporary total disablement, permanent total disability, or death caused due to accidents.
Total Coverage Received = Rs 0
- In the case of Abhishek, when he loses the use of his legs, the personal accident policy provides coverage of Rs 1 crore for the loss due to the road accident. Further, when he meets an untimely demise, the term cover provides coverage of Rs 1 crore to his family.
Total Coverage Received = Rs 2 crores
A Better Way Out!
No doubt, Abhishek’s way is the best way to get coverage in case of both accidental and natural circumstances that may occur. Opting for both term life insurance policy and personal accident policy ensures many dire circumstances are taken care of. And most importantly, that your family is taken care of.
However, we would like the readers to know that there is another (cheaper) way where you can buy a standalone term life insurance policy along with a personal accident rider; that is, one policy that provides the coverage of two.
A standalone policy is like a cell phone whereas a rider is the scratch guard applied on the phone.
There are some disadvantages to buying a personal accident rider, though:
- Once the term insurance policy expires, even your personal accident policy will expire
- The coverage given in case of a claim made on the personal accident rider will be lesser as compared to the pay-out in case of a standalone Personal Accident policy
For example, if the standalone term insurance policy along with personal accident rider offers coverage of Rs 1 crore, when you file a claim under the rider you will receive only up to a certain limit from the sum assured of Rs 1 crore. Whereas, if it was a standalone personal accident policy, in case of a claim for accidental injuries that cause the permanent disability of any 2 limbs or both eyes, the entire Rs 1 crore would be paid.
Be smart about your choices
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