Group Personal Accident

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What is the difference between personal accident insurance and life insurance?

A life insurance policy is a contract between you and your insurer under which, the insurance company provides a lump-sum payment, known as the death benefit, to beneficiaries upon the insured’s death. It acts as an income replacement for the family of the life assured. Life insurance caters to anyone that is financially dependant on you in the unfortunate event of death.

On the other hand, accidental insurance or personal accident insurance provides protection in case of death and injuries resulting from an accident. This policy guards an individual only in the event of an accident. The incident may cause impairment, whether short-term or lifelong wounds or even demise. Claims such as accidental death, accidental disability, accidental dismemberment are triggered under personal accident insurance.

Both life and accidental insurance provide strong financial support in case of death of the policyholder so that the financial future of the policyholder remains unaffected. These policies make sure that your dependents can lead a decent life economically despite your death. Although both policies primarily cover the death benefit there is a major which that in Personal accident insurance, an accident must have caused death, there is no strict restriction in life insurance as death by any cause is covered.

Following are the other differences between life insurance and accidental insurance:

  • Life insurance is tax-deductible but accidental insurance does not possess tax benefits.
  • Life insurance is more expensive while personal accident policy is cost-effective.
  • The accidental policy also covers permanent total or partial disability, accidental dismemberment, burns, fractures etc. But life insurance does not cover these medical eventualities. It only provides a death benefit.
  • One can take accidental policy as a rider or add-on cover with health insurance or life insurance but life insurance is always a standalone policy.

Read: What is the meaning of life insurance?

Both personal accident insurance and life insurance have a key role in risk management. Should either of these occur, the family would receive lump sum payment to compensate for the breadwinner’s inability to financially support them? Sum insured under both the policies is passed on to the legal heirs who could be the spouse or other dependents.

Read About: What does personal accident insurance cover?

Case Study: Rohit working in a transportation firm has met with an accident. He lost his one limb and the hospitalization costs incurred is about two lakh. During such devastating state, his family has no other income. Due to permanent partial disability, Rohit is not even in condition to work for a long time. Under such case, there are two scenarios:

Scenario 1: Rohit has a personal accident policy. In such case, he will receive a 50% or 100% payout of sum insured depending upon the terms of policy. He will be compensated for some amount of lost income. Accidental insurance will provide coverage during such eventuality in order to provide financial stability to the insured.

Scenario 2: Rohit has a life insurance policy. In such a case, he will not receive anything for permanent partial disability as term life insurance covers only the death benefit. All expenses have to borne by him only. All his savings will be wiped away in such a dark phase.

Hence if you ignore these policies, your lifelong savings can be eroded away because of mishaps.

What is the difference between personal accident insurance and life insurance?