When breadwinners face untimely death due to accidents, families not only suffer emotional trauma but also financial hardship. This is where accidental death benefit comes into the picture, offering financial protection to the family members of those individuals who have lost their lives due to accidents.
These benefits become a crucial financial safety net that can help dependents manage immediate expenses, clear debts and maintain their standard of living during such challenging times. This blog covers different aspects of accidental death benefits.
What is an accidental death benefit?
An accidental death benefit is defined as an additional payout provided by insurance companies when the insured person dies due to an accident. This benefit typically serves as supplementary coverage to a standard life insurance policy.
When you purchase a life insurance policy, you have the option to enhance your protection by adding an accidental death benefit rider. This rider provides an extra sum assured beyond the base policy amount if death occurs due to an accident.
Understanding accidental death benefits
To fully understand how death insurance benefits work in the context of accidents, you need to learn about some key aspects, such as:
- Claim period: Most policies require claims to be submitted within a specific timeframe after the accident. This period can typically range between 30 to 180 days.
- Premium cost: Adding an accidental benefit to your existing policy increases your premium payment, but the extra cost is quite less compared to the extra coverage provided.
- Age limitations: These riders usually have age restrictions. Many insurers offer them to people between 18 and 65 years, after which the coverage might terminate.
- Exclusions: Not all types of accidents qualify for the benefit payout. Policies typically exclude deaths resulting from self-inflicted injuries, criminal activities, influence of alcohol or drugs, participation in hazardous sports, acts of war or terrorism.
- Double indemnity: Some policies offer double the death benefit if the accident occurs under specific circumstances, such as while travelling on public transport or in a lift.
What is considered accidental death?
For death insurance benefits to be paid out, the death must meet the insurer’s definition of “accidental.” While definitions may vary slightly between providers, generally, an accidental death is one that:
- Occurs due to an unexpected and unintentional external event
- Is not a result of illness, disease, or natural causes
- Happens independent of any other cause
- Takes place within a specified period after the accident (usually 90-180 days)
Common examples of covered accidental deaths include:
- Road traffic accidents
- Falls
- Drowning
- Burns and fire-related incidents
- Electric shocks
- Poisoning
- Murder or assault (where the insured is not the aggressor)
- Work-related accidents
However, deaths from the following causes are typically excluded:
- Suicide or self-inflicted injury
- Natural causes or medical conditions
- War or acts of terrorism
- Participation in illegal activities
- Death while under the influence of alcohol or drugs
- High-risk adventure activities (unless specifically covered)
- Death due to medical or surgical treatment
Types of accidental death benefit plans
- Standalone accidental death policies: These are dedicated policies that exclusively cover accidental death, without providing any life insurance benefits for natural deaths.
- Life insurance with accidental death benefit rider: A standard term or whole life insurance policy with an accidental death benefit rider attached to it.
- Group personal accident insurance: GPA insurance covers a group of people under a single policy. Often provided by employers to their employees, GPA covers accidental death and disabilities.
Example of accidental death benefit
To understand how these benefits work, consider the following example:
Mr X is a 35-year-old IT professional who has purchased a term life insurance policy with a sum assured of ₹50 lakhs. Concerned about the high risks associated with his daily commute on busy city roads, he adds an accidental death benefit rider to his policy for an additional premium of ₹2,500 per year. This rider provides an additional sum assured equal to the base policy amount.
Unfortunately, Mr X meets with a fatal road accident. In this scenario, the insurance company would pay:
- ₹50 lakhs as the base term insurance benefit
- Additional ₹50 lakhs under the accidental death rider
Mr X’s family receives a total of ₹1 crore, which helps them manage immediate expenses, clear outstanding loans, fund his children’s education and maintain their standard of living.
Also consider this, Mr X’s workplace provides GPA insurance to all employees with a coverage of ₹25 lakhs. In this case, his family would receive:
- ₹50 lakhs from the term insurance
- ₹50 lakhs from the accidental death rider
- ₹25 lakhs from the GPA policy
The total benefit of ₹1.25 crore illustrates how layering different types of insurance can provide comprehensive financial protection for loved ones.
Conclusion
While money would not compensate for the loss of a loved one, accidental death benefits provide crucial financial support during a difficult time. These benefits help families maintain financial stability and meet ongoing obligations when faced with the sudden loss of income due to an accident.
FAQs
- Who can be a beneficiary for accidental death benefits?
Any person nominated by the policyholder can be the beneficiary. This typically includes spouse, children, parents or other dependents.
- Are accidental death benefits taxable in India?
No, the amount received as an accidental death benefit is generally exempt from income tax under Section 10(10D) of the Income Tax Act, provided the premiums paid do not exceed 10% of the sum assured.
- How long does it take to receive accidental death benefits?
Once all required documents are submitted, insurance companies typically process claims within 30 days. However, if the case requires investigation, it might take longer. Some insurers offer expedited processing for accidental death claims.
- Can I purchase only an accidental death policy without basic life insurance?
Yes, standalone accidental death policies are available. However, financial experts generally advise having a comprehensive life insurance policy that covers death from all causes, with an accidental rider as additional protection.
Disclaimer: The information provided in this blog is for educational and informational purposes only. It is advised to verify the currency and relevance of the data and information before taking any major steps. Please read the sales brochure / policy wordings carefully for detailed information about on risk factors, terms, conditions and exclusions. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.