Group Personal Accident

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This article is meant to understand the major differences between personal accident insurance and life insurance.

A life insurance policy is a contract between the insured and the insurer under which, the insurance company provides a lump-sum payment to the beneficiaries upon the insured’s death. This is the death benefit. It acts as an income replacement for the family of the life assured. Life insurance caters to anyone who is financially dependent 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 only 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. It covers claims to accidental death, accidental disability, or accidental dismemberment.

Major differences between life and accidental insurance

Both life and accidental insurance provide strong financial support in case of the 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 difference. Personal accident insurance covers claims to death due to an accident while life insurance covers claims to death in general. The cause could be anything.

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

  • For individuals, life insurance is tax-deductible but accidental insurance does not possess tax benefits. However, for companies, both insurances are treated as expenses and reduce profits
  • Life insurance is more expensive while a personal accident policy is cost-effective. This is because accident insurance covers a subset of the risks covered by life insurance
  • 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 an 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 a lump sum payment to compensate for the breadwinner’s inability to financially support them.  Under both the policies, the sum insured goes to the legal heirs, who could be the spouse or other dependents.

Case Study:

Rohit who was working in a transportation firm had an accident. He lost one limb. The hospitalization cost was about two lakhs. During such a devastating state, his family has no other income. Due to permanent partial disability, Rohit is not even in a condition to work for a long time. Under such a case, there are two scenarios:

Scenario 1: Rohit has a personal accident policy. In such a case, he will receive a 50% or 100% payout of the sum insured depending upon the terms of the 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 be borne by him only. All his savings will be wiped away in such a dark phase.

Hence ignoring these policies could lead to eroded lifelong savings because of mishaps.

Read About: What does personal accident insurance cover?

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