1: What is Personal Accident Insurance?
Personal accident insurance is a supplemental health insurance policy that pays cash benefits directly to you if you are injured in an accident. All benefits from an accident insurance policy are paid to you regardless of any other health insurance benefits.
You can buy a personal accident insurance policy. Or you can buy a group accident insurance policy. The personal accident insurance policy is an individual policy. If you own a personal accident insurance policy it is likely that you are paying a monthly premium. You pay your premium on bank draft or with a credit card.
In this post you will learn what to look for in an accident insurance policy. Plus you will learn how personal accident insurance works.
2: There are Two Different Types of Personal Accident Insurance Policies
For many years all accident insurance policies were basically specified injury policies. That means that the policy stated how much it would pay for a specific injury such as a broken leg (i.e. tibia) or a broken arm (i.e. ulnar). The benefits paid had no relationship to the actual charges that you incurred.
Today there are accident insurance policies that reimburse you for actual charges. These policies do not specify the injuries. They do require that you be injured in an accident and seek treatment.
3: Accidental Death Insurance is Not Accident Insurance (AD&D)
An accident insurance policy may contain benefits for accidental death. Accidental death insurance is a hybrid of life insurance and accident insurance. Most accidental death policies include benefits for dismemberment. Dismemberment is a loss or the loss of use of a body part such as an arm or leg. Some AD&D policies may include the loss of sight or hearing as well. Benefits for dismemberment are generally a percentage of the benefit paid for death.
Accidental Death and Dismemberment policies tend to very inexpensive. The reason that they are so inexpensive is that there is very little risk that the insurance company will pay a benefit. As you can see from the chart below (Products – Data Briefs – Number 395 – December 2020 (cdc.gov) only 49.3 people out of 100,000 will die in a given year as a result of an accident.
4: Accident Insurance is Not Disability Income Insurance
Like accidental death and dismemberment, an accident policy may include disability income benefits. Disability income benefits are monthly benefits that are paid to you when you cannot work due to a covered accident.
On the other hand, a disability income insurance policy will pay benefits when you are unable to work due to both an illness and an accident. Disability income insurance is significantly more expensive than an accident policy. This is because of the increased likelihood of having to pay a benefit.
5: You Have to Know What is Not Covered (Exclusions)
I cannot stress the importance of learning what type of accidents are excluded from the policy. This is especially true if you engage in risky activities such as skydiving.
Here are the exclusions listed in one of the accident insurance policies that I can offer.
Sickness, including but not limited to pregnancy and childbirth | Any care not medically necessary or benefits which are not specifically provided for in the Policy | Accidental injuries that do not first occur while the Policy is in force for the insured person | Hospital confinement for childbirth, including routine or normal newborn child care | Any act of war, declared or undeclared | Active military duty in the service of any country | Active participation in a riot, civil commotion or insurrection | Suicide, attempted suicide, or any intentionally self-inflicted injury while sane or insane | Mental or nervous disorders | Having cosmetic surgery or other elective procedures that are not medically necessary | Operating any motorized passenger vehicle for wage, compensation or profit | Drug abuse or addiction including alcoholism, or overdose of drugs, narcotics, or hallucinogens directly or indirectly | An overdose of drugs, being intoxicated or under the influence of intoxicants, hallucinogens, narcotics or other drugs, directly or indirectly unless administered on the advice of a physician | Directly or indirectly engaging in an illegal occupation or illegal activity or your being incarcerated | Committing or trying to commit a felony | Mountaineering using ropes and/or other equipment, parachuting, hang gliding, racing any type of vehicle in an organized or unorganized event, sky diving, scuba diving below 130 feet, motorized racing, parasailing, experimental aviation, ultra-light flying, base jumping, bungee jumping, heli-skiing or heli-snowboarding | Travel in or descent from any vehicle or device for aerial navigation, except as a fare-paying passenger in an aircraft operated by a commercial airline (other than a charter airline) certified by the U.S. Federal Aviation Administration (FAA), on a regularly scheduled passenger trip.
There are some accident policies that exclude any on-the-job injuries as well.
6: Accident Insurance is Not Gap Health Insurance
There are many insurance agents who sell accident insurance along with critical illness insurance (Is Critical Illness Insurance Worth It? – My Healthcare 360) as GAP insurance.
GAP insurance (What is Gap Health Insurance, and is it worth the money? – My Healthcare 360) is designed to pay your deductibles and coinsurance. And while accident insurance can help pay for deductibles and coinsurance, it only does so if you have a covered accident. If you need an appendectomy, your accident insurance is worthless.
7: The Only Reason to Buy Accident Insurance
At the end of the day, there is really only one reason to buy an accident insurance policy. That one reason is to replace lost income. And it is only if you are injured.
If you are a parent I want you to imagine that you were just called by the school. Your child was playing kickball and twisted her leg. The school is not sure if it is broken. Now you have to leave work to take your daughter to the emergency room. In the absence of using sick-leave or vacation time, you will lose some amount of pay. Plus, you will likely incur out-of-pocket medical bills. That double whammy is avoided with an accident insurance policy.
Consider an accident insurance policy that provided a $1000 emergency room benefit. In the example above, you would have received a check for $1000, regardless of any other health insurance. Knowing that you were going to receive $1000 would have given you the financial freedom to miss one or two days of work and pay.
8: Should I Buy Accident Insurance?
You should definitely consider buying accident insurance if you are single and do not have a disability income policy. That policy should pay benefits on the first day of a disability is due to an accident. This is especially true if you cannot afford a disability income insurance policy.
You should also consider buying a personal accident insurance policy if you lead an active life that includes sports such as skiing, soccer, or even bicycling. Or if you have young children. Young children tend to be very active and having an accident insurance policy will definitely make sense. The cash benefits from an accident policy can easily offset any loss of income and out-of-pocket expenses that you might incur.
9: What is the Best Personal Accident Insurance Policy?
When most people ask this question what they really want to know is: which insurance company and accident product are the best? But that is not the answer that I am going to give here. The reason for that, is there are too many insurance companies and too many accident insurance products to nail that down.
What I am going to tell you is that the best accident insurance product will pay benefits based on the actual charges and not upon specified injuries. Let me provide an example to illustrate why this matters.
I want to imagine that you just fell off of a ladder while painting your living room. You put out your hand to break the fall. You hit the floor and immediately know that it is broken. In pain, your wife drives you to Urgent Care.
According to https://health.costhelper.com/broken-hand.html the cost will be around $4100. If you have a $5000 deductible on your health insurance, you will have to pay 100% of the cost.
Specified Injury Accident Policy versus Actual Charges Accident Policy
Specified Injury Benefits
Monthly Premium = $19.67 (Enhanced Plan)
Broken Hand = $600
Emergency Treatment = $500
Total Benefit = $1100
National General Life (One of the companies that I represent as an independent health insurance agent)
Monthly Premium = $20.37
Actual Benefit = $4075
When it comes to an emergency room visit for an injury that does not result in a fracture is where the difference between an accident policy that pays benefits based on specified injuries and a policy that pays based on actual charges is very big. In the specified injury policy used above the emergency room visit is limited to $500. But with the policy based on actual charges, your only limitation is the policy limits.
10: You Can Add Riders That Enhance Your Insurance Coverage
Many personal accident policies allow you to add a variety of riders that provide additional coverage. Some policies may allow you to add an accidental death benefit rider. Other policies may allow an option to add critical illness, cancer insurance or even hospital income benefits.
Should you add additional benefits? In my opinion that depends on two things. First, can you afford the accident insurance policy with the highest benefits? If not, are the benefits provided by a less robust plan good enough? I always suggest that you spend your money buying the coverage that you need rather than buying multiple smaller policies that do not meet it.
The second thing to always consider is if buying a separate policy for those other coverage options might make better sense. If for example, adding a critical illness rider. Before adding that rider look at what the same cost would buy you in a stand-alone critical illness policy.
11: Never buy an accident policy from a captive insurance agent
A captive insurance agent is someone who represents only one insurance company. As such, that agent can only sell the policies of that one company.
When it comes to accident insurance, there are huge variations in both cost and benefits. As you have already seen, there are some policies that specify how much it will pay for each specified injury. But there are others that provide a bucket of money and reimburse you based on the actual charges incurred. The latter almost always results in a larger cash benefit to you.
Even when you are comparing a specified injury policy to another specified injury policy there can be large differences in benefits. But if the agent that you are working with only represents one insurance company, you may never know whether the policy being shown is the best. And just because another agent is selling an accident product from a nationally known insurance company, does not mean that it is the best option for you.
My advice is that you only work with an independent, professional health insurance agent. Because this individual has access to many different insurance companies, you are likely to get the best advice.
A quick word about commissions. There is a misguided belief that an independent insurance agent may choose to sell the policy with the highest commission. And while that may occur, it is highly unlikely because there is not a lot of variation in what an agent gets paid, regardless of the company. Even where there might be a variation, it is generally not more than 5% or so. On a monthly cost of $20, the agent might get paid $6 (30%) a month from one company. From a different company the same agent might get paid $8 a month (40%). I cannot speak for all insurance agents but I can tell you that this agent is not going to sell an inferior policy simply to make $2 a month, $24 a year more!
In my humble opinion, buying a personal accident insurance policy is a very good decision. For not a lot of money you can get financial peace of mind. And like a lot of insurance products, you may never ever use it. But the one time that you have to miss work to go to the emergency room with an injured child, the benefits will provide needed relief.
And because these policies are usually guaranteed renewable (you cannot be cancelled) you can keep it as long as necessary.