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Beware of Personal Accident Insurance

For historical reasons, a number of fundamentally different types of insurance products have names that appear to be broadly similar.

This can sometimes lead to some confusion for you regarding the nature of the various types of cover and more seriously, which may be the most suitable cover for you in your own, individual situation.

One such example might arise in the case of income protection insurance versus personal accident cover.



What is Personal Accident Insurance?

This is a form of policy that provides cover against the eventuality of an accident removing your ability to earn income.

There may be a number of individual variations in the way such cover works and how it would make payment in the event of a successful claim being made.

Typically these policies are organised around the concept of you selecting a level of cover and claiming against the policy, should you need to, with supporting medical and possibly police evidence etc. You might find it difficult to successfully claim unless you have clear and independent supporting testimony from such professionals.

Payment is typically based upon a lump-sum though there may be variations on that. In some cases, certain categories of accident or injury might be excluded. Those categories might include injuries sustained while engaged in criminal activities or those arising from participation in dangerous sports / hazardous occupations.

In some cases, certain categories of accident or injury might be excluded. Those categories might include injuries sustained while engaged in criminal activities or those arising from participation in dangerous sports / hazardous occupations.

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What is Income Protection Insurance?

This is a form of cover that will provide you with a monthly income in the event of a successful claim.

Such cover can continue for short to medium periods of time (perhaps 12-24 months) – this is called payment protection insurance or PPI. Longer-term income protection will pay out potentially up to your normal retirement date if necessary.

Originally policies of this type were targeted at accident and sickness risks but today it might be possible to include compulsory redundancy and associated unemployment in the short term PPI cover.

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What is the difference between personal accident insurance and income protection?

Although the above descriptions may appear to suggest the two forms of cover are broadly similar, other than in their lump-sum versus monthly income payment approaches, in reality they are quite different:

  • The first and most significant difference arises from the fact that the underwriting rules governing the two types of policy are fundamentally different.Space doesn’t permit a full discussion of the technicalities but typically income protection policies are subject to much tighter and demanding rules surrounding their underwriting and that in turn makes it difficult or impossible for insurance providers to change things such as the policy’s terms, premiums or to cancel cover, once it is in place.By contrast, these things can typically be much more easily changed by insurance providers where personal accident policies are concerned;
  • Also linked to the above background is the concept of own occupation. Income protection policies typically pay out based upon your inability to perform your normal occupation.
  • Accident policies may adopt a very different concept – that of suitable occupation. In other words, if you are unable to do your normal job they might not pay out, as they might consider you fit enough to engage in another form of alternative occupation.This is a very important difference and should not be overlooked;
  • Typically, income protection policies may have a longer-term pay out options to cover on-going situations and inability to work. Some policies might be able to continue generating an income for you until your normal retirement date;
  • The number of conditions covered by an income protection policy may be higher than a typical accident policy.

Which type of policy is best?

This depends very much upon your personal circumstances and what you are looking for by way of cover.

If you have little or no insurance of this type in place, you may wish to think about the totality of the risks you face in terms of threats to your ability to earn income including redundancy and sickness.

The second thing to consider is whether you would wish to have a lump-sum payment or a continuous on-going monthly income. The latter might be more practical and easier to manage in terms of helping you to balance your monthly finances.

The third point is how long you would wish cover to continue and under what circumstances. Income protection policies may be more flexible in these respects – and it’s worth remembering that such policies might also be willing to accommodate some forms of existing conditions in their cover.

Keep in mind also that some accident policies might be subject to sudden change by the providers concerned.



How much do the policies costs?

It may be the case that income protection cover is moderately more expensive than a typical accident-only policy. Of course, this isn’t a meaningful comparison as they are providing significantly different forms of protection and there may be the tendency in insurance to get the degree of cover you pay for.

Remember that it might be possible to reduce the cost of an income policy by opting for shorter-term cover, i.e. a pay-out period of 12 or 24 months rather than one that would need to cover you until your retirement date.


Further information

We would be very happy to discuss the differences of the two policy types further with you and you are welcome to speak to one of our independent advisers. You may find that would clear up any remaining uncertainties you might have.

Do please remember though that selecting an insurance product is an important choice and one that you may come to rely upon in the event that misfortune strikes.

Its therefore imperative that you make appropriate enquiries and think carefully on the issues and options before making your decision. This is not something that you should rush or take lightly and it is advisable to be cautious about unqualified advice.

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