An insurance portfolio's first and foremost objective should be to provide financial security to the family of the insured. A person should start exploring investment options only after the current and the estimated future expenses of the family are protected.
It is an established fact that persons up to the age of 45 years face a bigger threat to life from accidents than diseases and illness.
People in this age group can secure their families against the threat of accidental death with a personal accident policy. In case, the insured person dies in an accident the insurance company pays the complete sum insured to the nominee mentioned in the policy.
The policy gives a very broad definition to the word 'accident'. It defines an 'accident' as a sudden and unforeseen event. Hence it covers much more than road or train accidents. Even if an insured were to get fatal injuries after a fall in the bathroom, the policy would cover it.
In accidents of medium intensity, the victim may not suffer deep flesh wounds but can fracture his or her bones. Although such fractures are neither life threatening nor do they result in disability, they force the victim to stay in bed for many weeks. This prolonged absence can force a person to go on unpaid leave.
Ongoing medical expenses on one hand and loss of income on the other can be financially distressing for a family. A personal accident policy can pay for the period that a person is confined to bed.
The amount of compensation under the policy is not related to the insured's salary but to the sum insured. The policy has a provision to pay 1 per cent of the sum insured per week of the prescribed bed rest. This means that for a sum insured of Rs 5 lakh the insured will get compensation of Rs 5,000 per week. This would be equal to or more than the loss of salary for a large population of junior and middle level executives.
A person can also be involved in a minor accident where he may fortunately escape with minor flesh wounds, cuts or abrasions. A person may not get hospitalised for the treatment of such wounds. Hospitals and clinics dispense medical care for such wounds in the out patient department (OPD). While the mediclaim policy of a person will not reimburse such expenses, the personal accident policy can reimburse such OPD treatments.
Policies introduced by private sector non-life insurers can provide many useful riders like partial reimbursement of expenses in case of hospitalisation, more compensation in case fractures with the amount of compensation depending upon their seriousness. Some policies also have a provision to pay the sum insured, in case of death and disability, as monthly income instead of a lump sum. This is a very useful feature and one can choose a plan where the monthly income so provided can be equivalent to the present monthly earning. The best feature of a personal accident policy is its low cost. A person can get a comprehensive cover of Rs 10 lakh at just Rs 150 per month. Remember it is your responsibility to ensure a secure future for your family. With a personal accident policy you can do it effectively and economically.
(The author is the chief executive officer of Optima Risk Management)