Personal Accident Insurance

A Guide to Personal Accident Insurance

Personal accident insurance provides an extra added layer of financial security in the event you sustain a bodily injury or a killed as a result of an accident.  When combined with other forms of insurance, such as life insurance, it can provide valuable protection for a family at an unexpected time when it needs it the most.

What is Personal Accident Insurance?

Personal accident insurance, also referred to as accidental death and dismemberment insurance, provides payouts to policy holders or their families who suffer losses due to unintentional injuries.  It does not provide payouts for deaths due to natural causes or diseases.

Polices can be written many different ways or combined for comprehensive personal accident insurance coverage.  Coverages may include:

Accidental Death.  If you die from any kind of accident, your beneficiaries will be paid on your behalf.  This policy is similar to life insurance, but it covers a much narrower spectrum of circumstances and often is less expensive than life insurance.  You must die from an accident, and not from a disease, illness or natural causes.  Often, people with active lifestyles will get both forms of insurance to make sure their loved ones are doubled up when it comes to financial protection.

Disability.  If you are injured so severely that you can’t work anymore, then disability insurance will pay you a monthly income.  Many people think that workers’ compensation or other forms of employer provided insurance will cover them, only to find out that they might be covered at a substantially reduced amount and for a limited amount of time of only up to 26 weeks.  A personal accident insurance policy that provides disability payments will fill in financial shortfalls you may experience and will provide benefits for a much longer period of time.  If you work in a dangerous occupation, this might be an exceptionally valuable type of policy to have.

Accidents.  Many policies are written to pay you cash if you sustain an injury due to an accident.  Cash can be used to cover the costs of treatment and for other expenses such as rent, groceries or utilities.  Coverages will vary according to the type of accident you have.  Some will cover just about any qualifying mishap even if the injury is minor.  Other policies will only cover serious injuries.  That’s why it is important to ask the right questions and make sure you understand all the details of coverage when you shop for a policy.

Even policies that provide coverage for all of these circumstances will vary by the amount of payout you could receive.  A percentage of the face value of the policy may be paid depending on the severity of your injury as well.  If you lose a limb or an eye, for example, you may receive a 50% payout as compensation versus if you die in an accident.

What Personal Accident Insurance Does Not Cover

Personal accident insurance pays out for several clearly defined scenarios, but it also does not pay out for several clearly defined scenarios as well.  The most well-known instance of personal accident insurance not paying off if an injury or death takes place due to sickness or disease, but there are many others.

Keep in mind that every policy is a bit different and so exclusions may vary, but generally speaking, no benefits will be paid if any of the following circumstances exist:

  • If the accident takes place in a country where a state of war exists whether it is declared or not, and the accident and resulting injuries were a direct consequence of the war.
  • If you took drugs other than according to a manufacturer’s instructions or your doctor’s prescribed instructions.
  • If you take drugs for the treatment of a drug addiction.
  • If you cause an accident while driving a vehicle and your blood alcohol level is above the legal limit in the state or in the country where the accident takes place.
  • If your injuries are intentionally self-inflicted.
  • If injuries or death takes place while committing suicide or attempting to commit suicide.
  • If you sustain an injury or are killed while directly involved in an unlawful act.
  • If you deliberately or recklessly expose yourself to danger.
  • If you are injured or killed while you are flying, unless you are a fare-paying passenger on a commercial aircraft.
  • If you are injured or killed while you are practicing, training or participating in a sport as a professional or semi-professional athlete.

How Does Personal Accident Insurance Work?

Most personal accident insurance policies pay out a lump sum benefit when a policy holder dies or suffers a bodily injury as a result of an accident or unforeseen event.  Standard polices are normally written to include payouts in the event of accidental death, permanent total disablement due to an accident, the loss of a specified body part, or the loss of the use of a specified body part.  Some policies also cover permanent partial disablement, or temporary total or partial disablement as well.

The policy does not pay out if the death is caused by sickness, disease or any naturally occurring condition or process.  In other words, if you get hit by a car, you will be paid.  If you die of cancer, you will not be paid.

The amount of the benefit, the areas of coverage and exclusions all vary from policy to policy.  That’s why it is important to pay close attention to the details when you are shopping for a policy.  Do not assume that a specific type of accident is covered and for a certain amount.  You owe it to yourself and your family to ask these important questions up front.

In addition to being able to purchase personal accident insurance as an individual consumer, many times an employer will offer it as a benefit, getting more favorable rates because it is part of a group policy.  At other times, personal accident insurance may be bundled with other types of insurance, such as life insurance or with travel insurance.

Before determining whether or not to pay out a claim, an insurer will look at the sequence of events of a death or injury to make sure the provisions of the policy have been met.  Sometimes this is a straightforward process.  At other times, it is not.   There are also exclusions in a policy and if they are present, then a claim probably will not be paid.  Exclusions can include things such as if the policyholder was using drugs or alcohol, and what role they played in the accident.

Reckless exposure to danger is another exclusion and may include things such as driving with excessive speed in a car or taking on the hobby of parachuting or base jumping.  You should check with your potential insurer before taking out a policy to get a clear definition of what constitutes reckless exposure.

Another common exclusion is suicide.

Sometimes it is clear that a suicide was a cause of death.  At other times, it may be less so. In those instances, an insurer will look to a coroner for a verdict.  Coroners must be satisfied beyond a reasonable doubt that a person committed suicide before recording a death that way.  When it is recorded that way, the death is not accidental, and a benefit will not be paid.

Policies may pay as much as $250,000 for some kinds of accidental deaths.  When an injury is involved, the amount of benefit you can receive will vary depending on the injury and the associated costs.  Those associated costs can include things such as a trip to the emergency room, ambulance transportation, surgery, hospital stays and other related out-of-pocket expenses.

When an accident results in a permanent disability, you will be paid a percentage of the policy amount.  For example, if you lose a limb or the loss of sight in one eye, you may receive a lump sum payment of 50% of a policy value.  If you become a paraplegic, you may be entitled to 75% of the policy amount.

When your policy is in force, unless certain exclusions are in play, you are covered 24/7.  With a few exceptions, coverage is generally worldwide.

Policy costs will vary based on several factors but expect to pay about $25-$35 per month for family depending on the level of benefits, the type of benefits you choose and the carrier who writes the policy.

What is the Difference Between Personal Accident Insurance and Life Insurance?

Personal accident insurance and life insurance can work hand in hand to provide complementary coverage for you and your family in a variety of situations much greater than either one can provide on its own.

It’s true that life insurance offers broader coverage than accidental death insurance if you pass away, but you should still consider obtaining a personal accident insurance policy for a number of reasons.

Life insurance pays benefits when death occurs due to natural causes and in deaths caused by unintentional injuries, such as in a car accident.  In a 2013 CDC study, statistically speaking, accidental deaths were ranked as the fourth leading cause of deaths in the United States (just behind heart attacks, cancer and chronic respiratory disease), meaning that your family could be financially vulnerable if a sudden accidental death takes place.  While a life insurance policy will pay benefits, a personal accident insurance policy is an affordable way to provide additional financial peace of mind at a time in your life when your expenses may be the greatest and your loss would be financially devastating more than at other times.

Many people have active periods or higher risk periods in their lives and use term insurance to protect against death for a defined period of time.  Personal accident insurance is also used as an added layer of protection in these instances.

Another thing to consider is that if you’re leading an active lifestyle, you could be more susceptible to accidents if you engage in any kind of risky activities.  These activities may not even seem obvious, such as if you like to ride bicycles or perhaps surf or snow ski on a regular basis.  Many people are killed in accidents each year while participating in these activities, often through no fault of their own.

Personal accident insurance also means that even if you aren’t killed in an accident, you may also receive a financial payout for permanent injuries you may receive even if you’re engaged in some types of active or risky lifestyle choices.  Obviously, you must pass away to have your family receive life insurance benefits.

In other cases, you may have an existing medical condition that makes it challenging to buy life insurance.  While personal accident insurance will not give you the same kind of coverage as life insurance, it will still give you partial coverage is you are injured or killed in an accident.

What Does Personal Accident Insurance Cover?

Because every policy is different, there is no standard answer for this.  Depending on the policy and coverage that you choose, personal accident insurance may cover:

Accidental death.  A death must be ruled accidental and must not be attributed to natural causes.  Also, every policy has certain exclusions (i.e. suicide, death due to reckless behavior, etc.) that will not be covered.  It’s vital you understand all circumstances that the policy will pay out before buying it.

Permanent total disablement.  Benefits are paid when physical injuries lead to total disability of the policyholder.  In most cases, the entire policy sum is paid.

Permanent partial disablement.  When an accident leads to partial incapacity, payment may be up to 100% of the policy amount, or depending on the nature of the disablement, the policy may pay out a percentage.

Temporary total disablement.  If an accident injury results in total disablement for a limited amount of time, then a policy will normally pay a weekly amount, up to the policy limits, until the person is able to return to their work.

Out-of-pocket expenses. Personal accident insurance will also pay for out-of-pocket expenses for lesser injuries that will still leave you with medical costs and living expenses that must be addressed.  Some of those expenses may include:

  • Deductibles
  • Co-payments
  • Doctor visits
  • Hospital stays
  • Transportation
  • Lost wages
  • Rent or mortgage payments
  • Car payments
  • Groceries
  • Utilities
  • Child care

Once you make your claim, payment usually takes place within a matter of days so that you can rest easy in knowing your short-term financial impacts are covered.

A claim could be denied if you have pre-existing medical conditions or injuries or if you failed to disclose any conditions or an occupation that is specifically not covered by a policy. Also, if you sustain a workplace injury, you may not receive payment if your workplace provides you with compensation to cover you for your injury.

In addition to pairing up a personal accident insurance policy with life insurance, it is often used in conjunction or instead of other types of insurance as a form of income protection as well.

Depending on the level of coverage for a health insurance policy, it can be used to cover deductible amounts that don’t kick in on a health policy.  It fills in what could otherwise be considerable gaps if a person seeks treatment under a health policy with a high annual deductible.  It can also be used as a complementary source of income if a person has long-term disability insurance.  Disability insurance typically only pays a percentage of a person’s income, and personal accident insurance can help bring income to closer to 100% after an accident.

At other times, to save money on expensive car insurance, people may not have collision coverage on their vehicles.  Personal accident insurance can be used as a protective measure in this instance as well.

Why Buy Personal Accident Insurance?

There are many reasons why you should consider buying personal accident insurance:

  • Family security. If you are vital to the financial security of your family, then you must do everything you can to protect them.  This alone can be a powerful enough motivator to spur you to buy a policy.
  • Family coverage. It is easy to also take out policies on any member of your family.
  • Low cost. Depending on where you live, your age and how much coverage you want, you may be able to get a policy for as little as $20 a month.
  • Lower premium. Although payout terms are restricted, the cost of a personal accident insurance policy is much less than what you would pay in premiums for life insurance policy.
  • Worldwide coverage. Although there are a few exclusions (e.g. you aren’t covered in a country where war is taking place), you are otherwise covered throughout the world.
  • Easy claim method. Submitting a personal injury accident claim is generally a streamlined and easy process.
  • No demand for medical tests and documentation. Depending on your policy, it can be a relatively easy process to activate the policy without burdensome tests and documentation.  For standalone coverage, this can be an attractive benefit if you have been turned down for life insurance.
  • Additional coverage above normal health insurance coverage. This can include costs for rehabilitation and other expenses not normally coverage by your existing health care policy.
  • Premiums are tax deductible. You can claim a tax deduction if you pay the total cost of the premium out of pocket.
  • Flexibility on how the benefit is paid. You can choose to receive a payment in a lump sum or have the benefit paid on an ongoing basis to help with monthly living expenses.
  • Flexibility on how benefit payments are used. You can use benefits to pay for a variety of incidental expenses related to your injury or for living expenses.

How Much Does Personal Accident Insurance Cost?

Naturally, there are several variables that will determine the actual cost of a policy, but you can find coverage for about $20 or less per month for an individual and $35 to $40 per month for a family, depending on the policy benefits, amounts, and the carrier you choose.

Some of the factors that affect the cost of personal accident insurance include:

Age.  The older you are, the most likely you are to have an accident, so expect that your premium will be higher.  Also, insurers generally only provide coverage for people up to 70 years old.

Occupation.  If you’re a professional skydiver or heavy crane operator, expect to pay more than if you’re any kind of an office worker.

Benefit amount.  The higher the benefit amount, the higher the premium.

Coverage options.  The more comprehensive policy that you choose, the higher the premium will be.

Who Needs Personal Accident Insurance?

Some people will derive more potential benefits from having personal accident insurance than others.  It can prove to be an effective policy for people such as:

  • Motorcyclists, from casual weekend riders to daily drivers using a motorcycle as a primary form of transportation;
  • Bicyclists, especially those who ride in groups for extended periods and geographic lengths;
  • Horse riders or those who regularly engage with large and potentially dangerous animals;
  • Senior citizens and the elderly who are more prone to accidents as shown by statistics;
  • Children and students who are especially active during their formative years through college;
  • Self-employed who may need additional coverage that health insurance may not provide or who engage in highly active occupations;
  • Members of sports clubs;
  • Tradesmen who work with dangerous equipment such as saws, drills, presses, and other power tools, and
  • Families who want an extra layer of financial protection in addition to other forms of insurance.

Is Personal Accident Insurance Necessary?

Not always, but there are many instances where it makes good sense to invest in a policy.

For example, if you’re engaged in a dangerous occupation or you can’t afford the premiums for a life insurance policy, then a personal accident insurance policy may be necessary to provide you and your family with added security and peace of mind.  If that is an important goal for you and your family, then personal accident insurance is a wise and reasonable investment.

Is Personal Accident Insurance Worth it?

The short answer is, it depends.

Under several circumstances, personal accident insurance is worth it.  According to the National Safety Council, close to 40 million Americans get medical attention for injuries each year.  In addition, the NSC also provides details on the odds of dying due to various activities, many of which could be classified as accidents ranging from motor vehicle crashes to firearm discharges or electrocution.

Personal accident insurance may also make sense for you or your family if:

  • You work in a dangerous occupation.
  • You drive long distances for your job.
  • You have an active lifestyle with family members who play a lot of sports.
  • You engage in hazardous hobbies such as hang gliding, rock climbing, scuba diving, or riding dirt bikes.
  • You want added protection to offset the high out-of-pocket expenses that may be associated with your healthcare plan. With personal accident insurance in place, you may be able to lower your health insurance premium by raising the deductible because of the added coverage you enjoy at a less expensive cost.
  • You have a low tolerance for financial risk and exposure when it comes to medical expenses.
  • You do not have a life insurance policy or cannot afford to get one.

How Much Personal Accident Insurance do I Need?

Part of determining how much personal accident insurance you need is driven by what you can afford. If you are financially able, insurance experts recommend buying the same amount of personal accident insurance as life insurance coverage that you have.  Ideally, this means if you have a $100,000 life insurance policy, you should also have a $100,000 personal accident insurance policy as well.

Many people can’t afford to buy enough life insurance coverage, or they underestimate the financial hardships they might encounter if a loved one dies.  In those instances, because personal accident insurance costs less, it might be wise to buy more accident insurance as a safeguard that fits within your budget.

How much personal accident insurance you should buy can also be influenced by your occupation.  The more dangerous your occupation, the more you should consider a personal accident insurance policy.  It may make sense for people who are heavy equipment operators, commercial fishermen, construction workers and other similar employment where serious injuries are higher than normal.

How Do I Choose Which Personal Accident Insurance to Buy?

Like any other major purchase, you need to do research, shop and compare before deciding which personal accident insurance to buy.

Some things to consider include:

Policy terms and conditions

  • Exclusions
  • Cost
  • Policy limits
  • Financial stability of the provider
  • Customer service reviews and reputation
  • Payment turnaround time
  • Ease of submitting a claim
  • Payouts for out-of-pocket expenses
  • How does a policy work in concert with my life insurance?
  • Details of family coverage
  • Is my age a factor?
  • How does this particular policy fit into my overall financial strategy?

Which Personal Accident Insurance is Best?

There is no one set policy that is the absolute best.  It depends on your needs and circumstances.

First, determine the type of coverage you need and the amount that you want.  Look for stable, well-known companies that have strong financial metrics which can be determined by looking at ratings agencies such as A.M. Best.  It is the oldest and most widely recognized provider of insurance company and industry data and news.  You can also check out the Better Business Bureau, a reliable provider of unbiased information on insurance companies based on consumer input.

In some cases, an employer will offer personal accident insurance through a group policy.  In this case, the work has been done for you and you can either decide to opt in at a reduced premium or go your own way by working with an independent agent.

Another possibility for comparing and purchasing accident insurance policies from various insurance companies is Emerge.  This website helps you make decisions about personal accident insurance based on your lifestyle and budget.