Accidental Life Insurance is the little brother of full Term Life Insurance and can be known by a range of names including Accident Only Life Insurance and Accidental Death Insurance. Why is it the little brother of full Term Life Insurance? Unlike Term Life insurance that pays in death as a result of illness or accident, Accidental Life Insurance is a lump sum life insurance policy that pays in the event of accidental death.
For those who have the pleasure of day time television (I wish I did!), we are bamboozled by seemingly unlimited advertisements on Funeral Insurance and Life Insurance. Unfortunately a 30 second commercial is nowhere near enough information to know what you are covered for and to give you what you need to know you are making the right choice to protect your family.
How does Accidental Life Insurance work?
Accidental Life Insurance works in the same manner as a full life insurance policy, where a lump sum is paid to your beneficiary in the event of death. The main difference for what causes of death a claim can be made. Accidental Life Insurance is limited to basically how it sounds – an accident.
Ok, it is for Accident’s Only, but what is an accident?
This is the most vital part of an Accidental Life Insurance policy. What is the definition of what the insurer is going to base your families claim. Lets look at an example of what an insurer uses as their definition of Accidental Death;
‘ACCIDENTAL DEATH’ means that death is a result of a physical injury which is caused solely and directly by violent, external and unexpected means that is not traceable, even indirectly, to the life insured’s state of mental or physical health before the event.’
So basically this means that the accident that causes death needs to be unrelated in anyway to the persons health. Looking at that definition, it could be reasonable to think, “Well why should I bother?” I tend to agree in most cases. Where a person can afford to and has the health to obtain full life insurance, they should avoid Accidental Life Insurance like the plague – which wouldn’t be covered! Unless you have a serious ongoing medical condition, you should be able to get full life insurance, even if you need to pay more.
The arguments for not taking accidental death insurance aside, there is a very important place for Accidental Life Insurance. It should be considered for someone who is unable to get full life insurance due to medical history or other lifestyle factors or where cost is absolutely an issue (and try first – don’t just assume you couldn’t get covered!). Although events covered are limited to accidents, where there is no other option, it provides a level of protection to people and their families who cannot obtain full coverage.
What does an Accidental Life Insurance policy cost?
Not all life insurance companies offer accidental death insurance. Premiums are lower than a full life insurance due to the limited events that are covered. Premiums are not based on smoking status (smokers and non-smokers pay the same premium) or medical history and some providers charge the same premium across all ages. An applicant looking at insuring $500,000 could generally expect to pay around $30 per month. Forget about trying to put it under your super fund – Accidental Death Insurance policies generally cannot be owned and paid for by a person’s superannuation fund.
How do I apply for Accidental Life Insurance?
As illnesses are not covered, medical history is not assessed when applying for accidental death insurance. There is only very limited underwriting, normally only confirmation of occupation. Policies can usually be issued and coverage can start immediately.
How do I obtain an Accidental Life Insurance policy?
Accidental Life Insurance can be obtained from some insurers directly and via Life Insurance Brokers or Financial Advisers. Our preference is via Financial Advisers. Not only do they generally have access to more than one insurer, allowing them to find a policy that suits you, they are professionals and experts in Life Insurance. They can advise you on which policy suits, how policy wordings will affect you and most importantly, if the adviser is worth their salt, they will help your family make a claim. Compare this to obtaining insurance from an insurer directly and you and your family will have to rely that the information that the person gives you is right and relevant for your situation!
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About the Author – Benjamin Irons
Benjamin has been involved in the financial services industry since 2004. Benjamin has a Bachelor in Business, Diploma of Financial Services (Financial Planning). Previously a Financial Adviser and a business owner, Benjamin has worked with hundreds of individuals and businesses to implement simple strategies to improve wealth. Benjamin writes for a number of websites to assist people take control of their finances and find their financial freedom!