Securing your financial future and protecting your loved ones from unexpected disasters have become essential. Term insurance and personal accident insurance are two of the most prevalent insurance plans available in India for this reason. Both provide essential coverage but have various advantages and serve different purposes.
Whether you want to protect your family in the event of your untimely death or shield yourself from the financial consequences of an accident, it is critical to understand how these two insurance policies vary. Let’s look at these distinctions to assist you in picking the best coverage for your requirements.
Key differences between term insurance and personal accident insurance
1) Purpose of coverage
Term insurance
A pure life insurance policy is designed to leave your family financially secure should you no longer be there for them. If you die during the policy term, the nominee or beneficiary receives a lump sum amount that can be used for daily expenses, to pay off debts, or for any other needs. Depending on your liabilities and income you can choose to opt for 2 crore term insurance. The policy offers only a death benefit, with no payout for survival or any other event during the policy term.
Personal accident insurance
Personal accident insurance, however, covers the costs if the policyholder gets in an accident. Personal accident insurance is more specific than term insurance, which only covers death. It grants support for death, permanent disabilities or temporary incapacity due to accidents. They could even be things like being in a car accident, falling from a height or any accidental injury. This type of insurance is essential when an accident leaves you with life-changing consequences and is especially important for people with a higher risk of such an incident.
2) Type of risk covered
Term insurance
The scope of term insurance is wide when it comes to death benefits. It is the risk of death from any cause, irrespective of the cause, whether natural death, accidental death or even death from an illness. It provides an absolute emphasis on protecting the financial future of the family of the policyholder if he/she dies at any time under any circumstances. This is why term insurance is a perfect safety net for those who just want to make sure that their loved ones are financially stable whether their death was caused by any reason.
Personal accident insurance
On the other hand, personal accident insurance has very specific coverage. The policy only covers accidental risks, so if the policyholder dies of natural causes or illness, they won’t receive any benefits. The policy insures against death, permanent disability, or temporary disability which may cause an income loss. In other words, while it is important for the ones who are at risk of accidents, it doesn’t include other life risks that term insurance does.
3) Premium payments
Term insurance
The term insurance premium structure is mostly fixed, which means the policyholder will pay the same premium during the policy term. The premium charged for the policy varies based on the age of the policyholder, his or her health status, sum assured and duration of the policy. The longer the policy term and the higher the coverage, the higher the premium. But term insurance premiums are much cheaper than other life insurance products as these do not have any investment component.
Personal accident insurance
Term insurance is a more limited coverage and therefore, personal accident insurance policies have lower premiums. The premium is determined by the amount of coverage, the policyholder’s occupation (more risky jobs attract higher premiums) and lifestyle — whether, for instance, you take part in dangerous sports or hobbies. Personal accident insurance covers a more defined area of risks, and therefore premium is cheaper, hence a cheap option to cover accidental risks.
4) Payout type
Term insurance
Term insurance payout is straightforward; it is a lump sum payment to a beneficiary when the policyholder passes away. This amount can be used by the family to pay off debts, finance education or daily expenses. The purpose is to offer financial relief if the policyholder dies. Here’s where term insurance policies differ from general life insurance policies, as term insurance policies generally do not offer any payout if the policyholder survives the term.
Personal accident insurance
The payout structure of personal accident insurance is broader. If there is an accident the policyholder or beneficiaries may receive a lump sum amount or regular monthly income. It could be for permanent disabilities, partial disabilities, hospitalisation and medical expenses due to the accident. This type of insurance helps covers the financial burden of accidents resulting in temporary or long-term incapacity.
5) Coverage for disabilities
Term insurance
Term insurance does not provide for any disabilities arising out of accident or otherwise. The policy is intended to cover death only. If a policyholder is disabled but still alive, there is no financial compensation under the term insurance policy.
Personal accident insurance
Personal accident insurance centres on disabilities as one of its main features. It covers permanent disabilities (such as loss of limbs or eyesight) and temporary disabilities that are unable to work. Although the policy may pay out a lump sum on permanent disability, or provide regular income to cover temporary disability, it helps the policyholder maintain their financial health if unable to work.
Ending note
Both term insurance and personal accident insurance play crucial roles in financial planning, but their coverage and benefits differ significantly. Term insurance is better suited for providing long-term financial protection to your family in the case of your death, regardless of the cause. Personal accident insurance, on the other hand, is intended to give financial protection against certain types of accidents, including death and disability.
Choosing between the two is a matter of personal preference and lifestyle. If you want to provide a safety net for your family in case of an untimely death, term insurance is the way to go. However, if you want to protect yourself from the financial consequences of an accident, personal accident insurance is a better choice. Ideally, possessing both will provide a thorough financial safety net.