Most forms of insurance are, almost by definition, guarantees of compensation, or indemnity, against accidents of one kind or another. Accidents can be seen as the manifestation of all kinds of risks that surround us. In the case of accident insurance, however, the rather special risks singled out for cover are those arising from events causing accidental injury and the consequent loss of the usual income from work because of the time needed to stay in hospital or at home in order to recover.
In fact, the risk of accidental injury is so akin to the “accident” of falling ill and, for similar reasons needing the time off work during which to recover, that the risks of both physical accidents and illnesses are covered under one and the same accident and sickness insurance or incapacity insurance, as it is sometimes called (since both result in an incapacity to work). Unless, the individual enjoys a particularly generous sick-pay scheme run by his or her employer, time off work through incapacity is unlikely, sooner or later, to result in a withdrawal of pay. It is this loss of income that accident insurance seeks to address.
In the event of the policy holder being incapacitated by an accident or illness, therefore, the insurance pays out a regular, monthly benefit by way of compensation to indemnify the policy holder for his or her loss of income. It makes up for, at least in part, the income that has been lost through having to be absent from work.
Just as no one can predict when an accident might happen, so no one can foresee the injuries caused or the time it might take to recover. All that can be predicted is that income is likely to be forfeit and that the loss might continue for several months or more whilst the victim of the accident recovers from his or her injuries. In order to cover as long a period for recovery as possible, whilst still being able to shave the cost of premiums down to the minimum, therefore, accident insurance pays out the monthly benefits for a typical maximum of 12 months – long enough, in other words, to recover from all the most serious of injuries and return again to normal work. Nevertheless, for more cautious folk, considering the risk of injuries taking longer than a year to heal, some policies will offer the option of extending the maximum payout period to up to 24 months, when an additional premium will obviously need to be paid.
Immediately after an accident or the onset of an illness, of course, there is often no way of knowing whether they will be serious enough to require a lengthy period of time off work. Most policies, therefore, incorporate a waiting or “qualifying period” which must be completed from the first day off work until the insured benefits begin to be paid. This waiting period is typically between 30 and 90 days and, on completion, the policy might either treat it as having been a form of “excess” (with any loss being borne by the policy holder), or backdate the payment of insured benefits to the first day’s absence from work. The longer the waiting or qualifying period, of course, the less likely your period of absence is going to qualify for a claim on the policy and the longer you will need to wait for the payment of any claimed benefits. This is something to take into account, therefore, when choosing your accident insurance policy.
The other major choice to be made when setting up the cover is just how much will be needed by way of benefits during any incapacity. Will these be used as a general, all-purpose replacement income, or will they be used to cover specific, essential commitments which you simply cannot afford to miss, like the mortgage or the repayments on other loans or credit? The decision is likely to influence the level of cover you choose. Your choice is also likely to be influenced by the cost of the premiums, which are surprisingly modest, but which increase, of course, as the amount covered also goes up. Costs can be calculated easily enough, however, since these policies all now quote the premium price per £100 of cover provided. As a general rule, you should expect the maximum available amount of cover typically to be equivalent to 50% of your normally earned gross income, or £1,500 a month, whichever is less.
Whatever the type of insurance, some people are concerned about the “small print” of the policy and the risks excluded. It is true that accident insurance policies will also have their fair share of exclusions, although these are not generally numerous and none should be found too surprising. Since the insurance covers the risk of incapacity for work through accidents and illness, pre-existing medical conditions and ailments will probably be excluded, as will those illnesses which perhaps the majority of those in the workplace seem to suffer, such as “stress” and “bad backs”. Nevertheless, this form of accident insurance can be purchased without the need for medical examinations or the completion of detailed questionnaires.
In fact, the criteria of eligibility for accident insurance are very wide indeed. Since the insurance is covering the risk of a loss of income from work, you will clearly need to be in regular work at the time of purchase and will have to show that you have been so employed for at least the previous six months. Residence in the UK, Channel Islands or Isle of Man is required as is an age that remains below normal retirement age throughout the period covered by the insurance.
One of the times when consumers are most likely to be asked to consider taking out accident insurance is soon after arranging a loan or other credit (although these days lenders are required to wait at least seven days before making such overtures). Research has shown, however, that even if the insurance is to be used to protect a known monthly commitment to loan repayments, the best value for money is likely to be found in entirely standalone policies from independent insurance providers.
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