What is the difference between term insurance and personal accidental insurance?

Mumbai (Maharashtra) [India], October 8: If one is buying the term insurance plan for the first time, one usually gets confused between the term insurance vs. accidental insurance. You work hard to live comfortably and secure your future. You dream about buying a new house, going on a foreign vacation, and sending your child to the best college – the possibilities are endless. In the end, you may be doing your best to achieve your objectives but if one unfortunate event occurs, it can put a stop and create an obstacle for you and your family to fulfill those obligations. Both term and personal accident insurance can provide a financial safety net for your family. Before we can compare term and accidental insurance plans, we need to understand the standard definitions of each. This will help you understand the key differences between the two types of insurance plans, as well as the other differences.

What is term life insurance?

Term life insurance is a type of insurance plan that provides financial coverage for a set period of time. These are the purest and best term insurance plan forms of life insurance, providing extensive coverage at a reasonable premium. 

Assume you buy a best term insurance plan at the age of 30 with a cover of Rs 75 lakh and a policy term of 20 years. If you unfortunately pass away within the next 20 years (policy tenure), the insurance company will pay your nominee the death benefit (Rs 75 lakh). If you survive the policy period, you will not receive any benefits.

What is Personal Accident Insurance?

Personal Accident insurance is a policy that reimburses you for medical expenses and compensates you in the event of an accident-related disability. In addition, it provides a lump sum payment in the event of an accident-related death. Depending on the type of policy, you may be eligible for additional benefits such as income loss coverage for a set period of time. Investing in personal accident insurance can provide you with financial stability following an accident that can cause partial or permanent disability.

Comparison of Term Insurance and Personal Accident Insurance

Feature	Term Insurance	Personal Accident Insurance
Duration	Typically lasts for multiple years, such as 10, 20, or more.	Has duration of one year.
Renewals	No need to renew a term insurance plan.	Must be renewed every year for continued coverage.
Maximum Coverage Amount	The maximum amount of coverage available is generally up to 20 times your annual income.	The maximum coverage amount is usually 10 times your annual income.
Disability Cover	The basic term plan does not include any disability cover, but riders can be added to provide coverage for accidental and other types of disabilities.	The major covers of a personal accident insurance plan are accidental death and disability.
Benefit Distribution Mode	In a term insurance plan, the sum assured can be claimed as a monthly income, a lump sum, or a combination of both.	Can be claimed as a lump sum amount only.
Risk Factor	Term insurance plans provide coverage against natural death, which means that if the insured dies in an accident, no compensation will be given under the basic term plan.	This policy provides coverage only for accidental death or disability.
Compensation	In the event of the insured individual’s death, the beneficiary gets the insurance money.	In a personal accident insurance plan, if the insured person gets injured in an accident, the medical treatment charges can be claimed as per the policy.

 

Which Plan Should I Buy: Term or Accidental Insurance?

Personal accident insurance only covers accidental death, whereas a best term insurance plan covers death from an accident or natural causes. However, term insurance only provides a death payout. One advantage of personal accident insurance is that it covers medical bills and disability caused by accidents. One has to understand that your untimely death will affect your family’s future prospects. However, an accidental disability can result in financial difficulties and unexpected expenses. The payout from such insurance policies can assist an individual in maintaining a specific lifestyle or meeting basic financial costs even if an accidental disability causes the loss of his/her work or income source, which is not protected by a term plan.

As a result, the solution cannot be to choose between the best term insurance plan and accidental insurance rather it has to be both term insurance and accidental insurance.

You should invest in both term and accidental insurance because they offer different benefits. The term insurance policy covers your family’s financial needs in the event of your unfortunate death and on the other hand accidental insurance can cover your financial needs in the event of an unexpected accidental disability.

Having both policies allows you to continue your life insurance coverage even after you have become disabled. As a result, you will be in a state to provide financial security to your family even after an accident. If you only have accidental insurance, the policy may expire after a disability claim. Furthermore, accidental insurance does not cover death from other causes and hence, term life insurance plans. 

How Do I Buy Personal Accident Insurance?

You can purchase personal accident insurance in one of the following two ways:

1. a) Stand-alone Policy: Personal accident insurance can be purchased as a standalone policy however, the premiums for a standalone policy will be higher and it will increase with age.
2. b) As a Rider under a Term Insurance Policy: Instead of purchasing a separate term insurance policy, you can add personal accident coverage as a rider to your existing term insurance policy. When you add a personal accident rider to your term insurance policy, you will receive an additional lump sum payment in the event of accidental death or total and permanent disability. Typically, the premium remains constant throughout the policy’s term. It is preferable to include personal accident and disability coverage as a rider with term insurance. 

Your insurance coverage should not only be adequate to meet your family’s financial needs, but it should also cover a variety of risks. Both term and accidental insurance plans are necessary because they cover different scenarios and broaden the scope of your insurance which is important in current times. Ideally, your term insurance coverage should equal 10-15 times your annual income. Your accidental coverage can be between 25 and 50% of your term coverage.

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