Personal accident insurance or life insurance: What should youngsters buy?

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Siddharth Singh, 24, is a software engineer who has just started working. Except for his personal expenses, the man has no major financial commitments or debts to pay off. He wants to save a part of his salary for future goals and would like to spend the rest amount comfortably for now. However, having seen the absolute mess of Covid-19, he realises the importance of investing in good insurance. But what should be his primary focus while opting for one, he asks.

Its often advised to buy a life insurance at the earliest. However, when it comes to youngsters with zero dependents and liabilities, what should be their priority? Should they follow the thumb rule of getting life insurance or look for more specific and timely needs like accident protection, etc.?

Kickstarting your insurance investment

“The first priority for any youngster who starts earning is to go to his bank and sign the form for Pradhan Mantri Jeewan Jyoti Bima under which he will be insured for term insurance for Rs 2 lakhs and a premium of Rs 330 will be deducted from his bank account in the month of May/June. The second form that should be signed is Pradhan Mantri Suraksha Bima in which he will be insured for accident insurance for Rs 2 lakhs and premium of Rs 12 will be deducted from his bank account in the month of May/June,” said S K Sethi, director at Ria Insurance Brokers which sells both term insurance and accident insurance.

Though Siddharth didn’t have the burden of an education loan, those with impending debts should get insured for an amount equal to at least 10 times the annual salary for term insurance. Generally, we find youngsters invest in motorbikes or other vehicles right after getting the first job. In our country,  motorbike accident rates are definitely higher than accident rates for 4-wheelers. Sethi feels, “If the bike accident results in a fatal accident then term insurance and accident insurance both are at par (one can claim from both the policies) and the family gets the amount which can be paid for repayment of an educational loan.”

A term insurance plan is believed to be more inclusive and economical than a personal accident cover. But sometimes people don’t want to invest in a life cover at a young age. Instead, they’d like to insure a more probable event, i.e., an accident.

Life insurance vs personal accident cover?

While the premium for both products is quite less, assuming someone wants to buy only one policy, then we have to go into the details.

Sethi clearly states, “Majority of the people in India die due to natural illness like the current pandemic, malaria, heart ailment, etc. The term insurance amount is payable for death due to any ailment or accident. Meanwhile, under accident policy, a claim is payable only when the death occurs due to an accident. We cannot say that PA is a weak product because it is having additional benefits like disability benefit, which is not available in term insurance. Disability benefit is payable if, due to an accident, one organ or any two organs are lost. The amount payable is 50% or 100% of sum assured respectively.”

If due to an accident, the insured person cannot attend his job then the weekly benefit option is also available which can range from Rs 1,000 to Rs 5,000 per week. If someone can afford both policies then one can go for both policies to maximum coverage.

An overview of your insurance plan

Sometimes, being over-insured can result in a higher cost than what any young earner needs to incur. On the other hand, being underinsured can equally expose one’s income to risk. How can youngsters plan a comprehensive insurance plan at the beginning of their careers?

Let’s consider Siddharth’s case. He is 24 years old, non-smoker. Let’s assume he earns a salary of Rs 6 lakhs per annum. The insurance premium to be paid for 40 years will be as follows:

Term Insurance – SA Rs. 25 lakhs then the premium is Rs 4,278/ year or Rs 356 per month.

Accident insurance – SA Rs. 25 lakhs then premium will be Rs 3,590/year for a non-hazardous job. On monthly basis, it will cost Rs 300 per month.

“In percentage terms, this is very less and we can say less than 2 coffees in Star Bucks therefore youngster will like to go in for these insurance policies,” Sethi candidly pointed.

Choose wisely

Term insurance is dependent on income, age, selected policy term (say 40 years), where the premium will be fixed for the whole period. One can even get a policy that will insure him/her till the age of 99. The premium for such policies increases with age.

Accident insurance, on the other hand, will also consider job/profession, and the premium payable will vary as basis the kind of job. A regular 9-5 employee will have a low premium compared to an electrician working amid high voltage electrical transmission lines. Here, the premium won’t increase as per your age but only if you change your occupation.

But here’s what you can take away – Life insurance should be the first layer of protection due to its wide coverage. An additional layer of personal accident can be bought as secondary layer protection. Therefore, it’s best to holistically assess your needs and choose a policy accordingly.