The Underrated Risk of Disability & Personal Accident Insurance

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Why do you need personal accident insurance?

At Beshak, we want to help you look beyond the buzz. We want to initiate conversations about insurance solutions that are critical, especially when no one’s talking about it. 

The world keeps talking about the importance of health insurance, term life insurance but very rarely do we speak about the risk of disability and how to insure it. 

Here’s the Part 1 of our article series that uncovers this truly important risk and its insurance cover. 

  • Explaining why covering the risk is relevant and critical 
  • Taking you through the unassuming, inexpensive but comprehensive insurance cover called personal accident insurance and
  • Insider insights into why no one is talking about it. 

Disability: The underrated risk

An accidental disability can cause severe financial damage. It can create more financial havoc than even death. Here’s how. 

  • You first pay for the hospital bills, medical expenses to treat the injury.
  • Next, the costs to manage mobility like the costs of a wheelchair, modifying your home, maybe even your car. 
  • Finally, the worst that can bite the family hardest- the loss of regular income. 

The consequences of disability have been very well articulated in this extract from The Boglehead’s Guide to Investing.

The relevance of the risk of disability 

More than 50% Accidents happen at home 

Surprised? We don’t have images of home accidents in our heads. Injuries at home don’t get reported on Television. Studies in India, and worldwide report more accidents at home than on the road or in an airplane. Psychologists say our subconscious overestimates our control over situations in the comfort of our homes. So we carelessly climb that chair to fix a bulb, use a sharp knife to cut vegetables while watching television.  

Poor Safety Standards

Our cities have poor safety infrastructure – With the kind of roads we have, we really don’t need adventure sports in our country – we are on a permanent and free roller coaster ride. We have open manholes, crater size potholes (3597 dead, 25000 injured in Mumbai in 2017), uneven speed bumps, footpaths taken over by hawkers, roads taken over by parked cars, pedestrians and more hawkers. God help you if you ride a bike, but even a simple walk through a busy street can be like taking part in Takeshi’s Castle, without Javed Jaffrey’s commentary. 

We don’t seem to have a great safety culture too – Overcrowded trains, metros, and buses. Indifference to fire-drills, fire-alarms. Jaywalking. Lack of lane discipline. Stuffing 4 passengers in a share-autorickshaw. Removing seat-belt once you are on the highway. Wrong side driving. Of course, these may not be applicable today for many of us, but it does reflect our carefree culture around overall safety.

Ding. You have a new notification!

Time to make a confession. Have you never read or texted while driving, walking on the street, or climbing down a staircase? And it takes a moment of distraction for an accident. Doesn’t it? 

We couldn’t find any numbers for India, but as per estimates, distracted drivers injure approximately 421,000 people in the US every year! Sure the numbers would be even higher here in India. 

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What should you do?

The intent is not to freak you out. 

We want you to take a step back and assess the risk. The year 2020 made us realize, how fickle our world can be.  Many I know have taken this time as an opportunity to take a pause, take stock of their financial lives. An important part of reflecting on our lives is to take a fresh look at the risks we are exposed to, finding best ways to insulate our lives from them.  

Improve safety at home:  Risk mitigation starts from home. I am certainly not an expert here, but the few things that can be done to reduce accidental injuries are improved lighting, avoiding wires, objects lying on the floor, no sharp edges,  grab bars in washrooms, anti-slip mats – especially if you have kids and/or senior citizens at home. 

Improve safety outside: Ensure you are alert, not distracted. Follow traffic rules.

Insure the risk: Apart from covering the healthcare expenses through a health insurance, it is super important to financially cover the risk of disability through the humble, truly inexpensive Personal Accident (PA) Insurance policy. 

“There is a cover for that”

The kind of things a Personal Accident cover provides can amaze you. Insurers can very well launch a “There is a cover for that” campaign akin to the 2009 “There is an app for that” campaign by Apple. 
Here’s an attempt to cover the vast range of protection, the policy can provide. 

Covers a wide range of accidents:

Here’s the standard definition:  An accident means a sudden, unforeseen and involuntary event caused by external, violent, visible means.

As you would have realized, the definition of an accident is pretty wide in a Personal Accident Insurance policy and will include accidents like falling in the bathroom, stumbling on something, tripping on the stairs, even a workout injury, to drowning, choking, fire injury, gas cylinder blast, electric shock, to a stampede, to terrorism and more. Besides, road accidents it can cover much more. Including the clumsiness in each of us 🙂 

Covers a wide range of accidental disabilities:

While the policy won’t cover minor bruises, a personal accident policy can practically cover every serious disability that is occured due to an accident explained above. Here are major disabilities covered: 

Permanent Total Disability – These are a list of irrecoverable injuries where one has lost a core faculty of the body that significantly diminishes your ability to earn, live a regular life. Some disabilities that are covered under permanent total disability are blindness, losing both hands, or both legs or one hand or one leg. Some policies may include losing speech, the ability to eat, and even losing sanity!

The policy usually pays 100% of the coverage amount (Sum Assured) in case of a permanent total disability. 

Also Read on FinMedium:  A comparison of 4 Personal Accident & Disability Insurance Covers

Permanent Partial Disability – These are a list of irrecoverable injuries that result in partial disabilities like losing sight in one eye, losing the ability to hear, losing a limb, or even finger, etc. The coverage for such disabilities is based on the severity of the disability. The policy pays a certain % of the total coverage amount as per a predefined grid. 

Here’s an example of coverage under the permanent partial disability of a leading insurer.

An example of a permanent partial disability chart from Bajaj Allianz

I mean just look at the depth of the coverage:  losing sense of taste, sense of smell are covered!

Temporary Total Disability – A comprehensive personal accident will cover injuries, disabilities that temporarily make you immobile, bed-ridden. In these cases, the policy will pay a fixed benefit every week, usually, 1% of the sum assured. For instance, if you have bought a 20 Lakhs cover, the policy promises to pay Rs. 20000 every week for the duration you are temporarily disabled. Note, in some personal accident insurance policies, you may have to separately opt for this cover. 

Accidental Death – And of course, the policy will pay 100% of the Sum Assured, in case the insured person passes away within a year of the accident due to the injury. The aggregate payments made under the policy is limited to the base sum assured. 

Not all accident insurance offerings are the same.

Accident Riders in Life Insurance Policies

A rider is an upsell, and hence can rarely be compared with a full-fledged comprehensive policy. A disability rider in a life insurance policy will usually cover only accidental death and permanent total disability. These policies usually do not offer covers like partial disabilities or temporary total disabilities. 

Further, often the definition of permanent disability in Life Insurance riders can be narrower than the definition in General/Health Insurance policies. Here’s an example:

In the case of riders in life insurance policies, a permanent disability is defined as the inability of performing a minimum of three of the six activities of daily work- walking, bending, climbing, lifting, writing, seeing.

Here’s an extract of the coverage under permanent disability under a comprehensive PA policy:

Permanent Total Disability Chart

So in case the person covered under the policy meets with an accident and turns blind – the comprehensive personal accident will pay 100% of the sum assured, while a life insurance rider wouldn’t pay at all. 

How much does it cost?

After all the coverage, you may be thinking that this cover would be super expensive. 

You are in for a surprise. For someone doing a desk job, a Rs. 10 Lakh worldwide comprehensive disability cover will cost less than Rs. 2000 per annum, inclusive of taxes. For others, it could cost around Rs. 3000 to Rs. 4000 annually. The pricing will vary based on the occupational risk you carry. So, a civil engineer working on a construction site will pay more than a supervisor at a call center.

Who should be covered?

To start with, all earning members in the family should be adequately covered.

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Here’s an important tip: We strongly recommend you buy an adequate cover for your personal staff like drivers, maids, and your office staff who have a higher exposure to the risk of accidents and disability.

Key exclusions:

Here are some key exclusions that you should be aware of:

  • Participating in an adventure sport. Ok don’t sulk, some policies do offer a separate add-on cover for adventure sport. 
  • Self-inflicted injuries. 
  • Involvement in criminal activities, riots
  • Accidents as part of the defense forces
  • Injuries during War (Terrorism is usually covered)
  • Accidents under the influence of alcohol, intoxicants.

Of course, this is not an exhaustive list. You will have to refer the policy wordings or talk to a financial advisor to know the entire list of exclusions.

So why is no one talking about it?

Here’s some insider opinion. It’s important to understand why this awesome, important product will never get sold, campaigned. There are primarily two reasons:

A. Understand the vicious circle of high ticket size: 

Insurance is complicated >> Selling Insurance is difficult >> Selling Insurance is expensive >> Insurance needs more revenue for every unit sold >> Insurance needs to sell high premium (high ticket) products >> Selling high ticket Insurance is difficult >> We need human agents to sell high ticket sized products >> Selling Insurance is expensive.

Personal accident insurance is low ticket insurance. A Rs. 50 Lakh cover may cost just Rs. 7500 inclusive of tax. Commissions will be around Rs. 2000 per policy. No one wants to sell it.

B. The insurance industry’s dependence on distributors: This is a corollary to the above point, but needs a mention. The insurance industry has always depended on Distribution as a primary means to create the market. This strategy keeps the distributor (the agent, the bank, the aggregator) at the center, instead of the customer. You are sold products that the distributor wants to sell. This is precisely the reverse of what FMCG does. It invests in creating the market through branding, advertising – which commoditizes the distributor. Insurtech can change this.

There’s more!

A comprehensive personal accident insurance plan offers more than 30 benefits. And of course, there are questions around how much cover one should buy, which is the best accident insurance policy, the comparison of plans, and more.

Here’s the thing: We aren’t sure if this topic really interests you, intrigues you. We are a tiny team of two right now – and we would like to prioritize.

Do us a favor: If you want to read part 2 of this post – do tweet us at @beshakIN or in the comments section right below this article.

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Mahavir Chopra
Online Insurance (aka #insurtech) since 2005 | Chartered Accountant | Ex. @Coverfox, Marsh, EY | Writes for ET/Mint/MoneyControl/Business Standard
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