Insurance is essential for safeguarding the financial future of your family. But, with so many choices, it’s critical to know which plan best meets your requirements. Term insurance plans and personal accident insurance are two common insurance policies.
Although they have different functions, they both provide financial security in the event of unforeseen circumstances. We will outline the main distinctions between the two in this post to assist you in selecting the best option for you.
Key differences between personal accident insurance and term insurance plan
Purpose of coverage
Personal accident insurance is designed to offer financial compensation when an individual suffers from injury, disability, or death due to an accident. This is insurance which supports people in the recovery process, or in the case that an accident prevents a person from working.
On the other hand, Term Insurance is structured to pay out a lump sum amount to the policyholder’s nominee when the policyholder passes away, no matter what the reason. With this, the family or the beneficiaries of the insured will be financially protected if the insured dies.
Type of risk covered
Personal accident insurance is the insurance that deals with risks arising from accidents. It includes all types of incidents such as road accidents, falls, and mishaps resulting in permanent disability or death.
However, term insurance plan is extensive because it covers death even if it is due to natural causes, illness or accident. Personal Accident Insurance is meant for specific accidents and term insurance is meant for broader death in any form.
Scope of coverage
Personal accident insurance covers accidental events only. It may include accidents such as car accidents, workplace injuries or any mishap leading to injury or death. Having a broader coverage, Term Insurance includes death by illness, natural causes, or accidents, and therefore, the best alternative for the overall life coverage.
Personal Accident Insurance covers certain risks arising out of accidents and Term Insurance covers a variety of risks that occur during one’s life.
Premium costs
As personal accident insurance is limited in its coverage, focusing solely on accidents, its premiums are generally more affordable. For people who don’t want to pay a huge premium for protection against accidental risks, it is a budget-friendly option.
Term insurance plan, however, often comes with higher premiums due to their broader scope of coverage, which includes death from natural causes and illnesses. While Term Insurance may be more expensive, it provides a higher level of security for the policyholder’s family in the case of death, regardless of the cause.
Payouts
Personal accident insurance pays out if you are permanently disabled, die in an accident or incur medical costs as a result of an accident. The policyholder is assured that he or she will be compensated for medical treatment, rehabilitation or any long-term disability.
Term Insurance is just a policy that pays a death benefit to the policyholder’s beneficiaries when the policyholder dies while policy cover pays a death benefit to the beneficiaries if the policyholder dies. It is a lump sum amount, and this is the benefit that will ensure that the family of the deceased is financially secure.
Add-ons or riders
Most often, personal accident insurance includes additional benefits or add-ons like hospital cash allowance, emergency medical evacuation and coverage for some critical illnesses. They help to improve the base policy’s protection.
Meanwhile, Term Insurance provides different riders like critical illness cover, accidental death benefits, or a waiver of premium rider, which allows for the coverage to grow with the needs of a policyholder. All the above help tailor the plan to the specific needs of the insured individual.
Claim process
The personal accident insurance claims process is usually faster and simpler. If the incident is verified to be an accident, then claims can be processed quickly. That’s because the verification consists mainly of verifying the injury or death was caused by an accident.
The claims process for term insurance, however, can be more complicated — it typically involves a lot of paperwork, such as medical reports and proof of death. The process can also be more complicated than personal accident insurance.
Policy tenure
Personal Accident Insurance has a short period of tenure of generally 1 to 5 years. In the short duration, policyholders can buy coverage for specific periods when they may need the coverage most, for example, during risky periods of their life.
In contrast, Term Insurance offers longer policy tenures, typically ranging from 10 to 30 years. These long-term plans provide coverage for the policyholder’s entire family or financial future over an extended period, ensuring that their beneficiaries are financially protected in the case of the policyholder’s death.
Eligibility
Personal Accident Insurance has fewer eligibility requirements. It is for people between the ages of 18 and 70, which means it is available to lots of people.
However, Term Insurance requires medical underwriting and is typically available to folks in their 20s to early 60s.
So, the Term Insurance app can only be applied for those who have to take a medical assessment and can be granted with regard to their health and age at the time of application.
Tax benefits
Personal Accident Insurance is a cover that is eligible for deduction under Section 80D of the Income Tax Act (tax deductions on medical expenses). It will help reduce the tax burden on policyholders.
However, premiums for Term Insurance are taxable under Section 80C. Also, the death benefits of the beneficiaries of Term Insurance under section 10(10D) of the Income Tax Act, are completely tax-free.
Which is the right choice for you?
Your unique situation and objectives will play a major role in your decision between term insurance and personal accident insurance. A term insurance policy is crucial if you want to shield your loved ones from the financial strain of your premature passing because it pays out a lump sum to your dependents in the event of your passing.
If you are the family’s main provider and want to make sure your loved ones will have enough money when you pass away, this plan is perfect for you.
On the other hand, personal accident insurance is a helpful addition to your financial plan if you wish to protect yourself against the effects of an accident, such as a permanent disability, hospitalisation, or loss of income.
To offer more complete protection, it can also be used as an additional cover in conjunction with a term insurance plan.
To make sure that both accidental and death-related risks are covered, people frequently choose to get both plans. By combining term insurance with personal accident insurance, you may provide a comprehensive safety net that will protect your family’s financial stability as well as your well-being.
