Personal accident insurance or PA is a annual insurance cover that compensates against events caused by accidents.
Many may already know the concept of life insurance and its purposes. If you have met an insurance agent before, the chance is high that you have been recommended personal accident insurance. PA is one of the most recommended insurance products around.
Although life insurance can be the best form of protection to many, it may not be the best solution for others. Some people may have their reason(s) for not wanting to purchase life insurance while others may not have the luxury of choice. If you fall into the latter group, this article can offer a comforting alternative for you.
Not everyone can buy life insurance
Some of the reasons why you cannot purchase life insurance are:
1. Your Age
Life insurance generally only available to those below the age of 65. This age limit does not mean that it won’t cover a person over 65 years old. It merely means that once you are 65, you can no longer purchase life insurance. If you have bought the life insurance earlier, your life policy can protect you and your family up to the golden age of 100 years.
At an older but qualified age, for example, 50 years, life insurance also becomes too expensive to purchase. This increase in price as you get older is one of the reasons why you want to buy life insurance at a young age. When you buy life insurance at a young age, the insurance does not get so expensive as you get older.
2. Your Medical condition or family medical history
Some people may not qualify to purchase life insurance due to their pre-existing medical condition. In short, the pre-existing medical condition is defined as any injury, disease or other physical condition, existed during the time of application. Cancer, diabetes and heart-attack are examples of pre-existing conditions. In the best case, the insurance company will exclude those pre-conditions from life insurance, so you can still buy it.
For instance, if the applicant has been diagnosed with and treated for cancer before, then the insurance company will either deny him life insurance or exclude this condition in your coverage. When it is not mentioned during the insurance application, the insurance company will not cover any cancer-related medical cost. The exclusion of pre-existing medical condition is why it is better to get life insurance as early as possible when you are still healthy.
However, this isn’t all there is. Insurers will also go to the extent of wanting to know the family medical history of the applicant. If the applicant has a history of cancer or heart-attack in their family, insurance companies may decline their application for life insurance.
3. Insurance price too high
The price for life insurance, especially whole life insurance, can be relatively high, for:
- Low-income earners – Many low-income earners cannot afford to purchase life insurance. The cost of life insurance starts approximately RM 1,000 a year. For some Malaysians, this amount is hard to come by. With many more responsibilities and commitments that are deemed priority, owning a life insurance policy is perhaps the furthest thing from their minds.
- Older people – As mentioned before, the older you get, the more expensive the life insurance will be. If you have not bought life insurance early, then starting life insurance later at an old age can be very expensive.
- Medical pre-condition and family history – When you have a medical pre-condition or a family history, the insurance company will want to exclude this condition from your insurance cover. This exclusion will limit the benefit of the insurance because the most likely medical condition is the reason you wanted to have protection in the first place.
What is a cheaper alternative to Life insurance?
If you fall into any of the above group, but still want some form of insurance coverage for death, Personal Accident insurance is the cheapest alternative.
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Personal Accident Insurance as an alternative to Life Insurance
What is personal accident insurance?
Personal accident insurance or PA is an annual insurance cover that compensates against events caused by accidents. Although more suited as a supplement to life insurance, PA can be a cheaper alternative to full life insurance.
What does personal accident insurance cover?
PA insurance covers death and total permanent disability (TPD) of the insured that is the result of an accident. It does not cover natural death, which means “death occurring in the course of nature and from natural causes such as age or disease” (Merriam-Webster). This is the main and most critical difference between PA and life insurance. However, PA does have a few unique advantages over life insurance.
Advantages of PA Insurance
1. Can be bought at an older age
Many insurance companies will not allow you to purchase life insurance, especially when you are 60 or older. PA, on the other hand, can be purchased at a much older age. For example, Syarikat Takaful Malaysia offers its myClick PA up to the age of 70.
2. No medical or family background checks
People who cannot buy life insurance because of pre-existing medical condition or family history can still buy PA insurance. There are no doctor visits needed and no questions about medical conditions in your family. This simplification is why buying PA insurance is very simple compared to life insurance.
3. It is cheaper
Personal accident insurance is much less expensive compared to life insurance due to its restrictive and limited coverage. Often you can get it for free together with other insurances. For example, Takaful Malaysia offers free RM 15,000 coverage to each driver and passenger with the purchase of motor insurance.
How much cheaper is PA compared with life insurance?
For example, Allianz PA for a 60-year-old person with a sum insured of RM 120,000 costs around RM 189 per year. The life insurance with the same sum insured can cost more than RM 2,000 per year. This price is more than ten times the personal accident insurance.
However, this is by no means an apple to apple comparison. One should keep in mind the vast difference in the risk covered between the two types of insurance policies.
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4. You can buy it short term
Another significant advantage that personal accident has over life insurance is that you can buy it yearly. Most life insurances have a minimum duration of 5 years. This contract means you always need to make a long-term commitment and ensure that you have enough money to pay for the premium. PA, on the other hand, is paid and bought yearly.
5. Extended cover for dangerous sports
Life insurance excludes dangerous sports and lifestyle from their policy. For example, if you die in a sky diving accident, then your family will not receive the sum insured. Special personal accident insurance can protect these kinds of specific risks.
For example, Allianz Shield PA covers amateur sports like scuba diving and bungee jumping.
Personal Accident insurance CAN NOT replace Life Insurance
Albeit the advantages, personal accident insurance cannot be a replacement for life insurance. These are some disadvantages of personal accident insurance:
1. Does not cover natural death
Personal accident insurance provides financial protection against accidental death and not against natural death, like death from old age or illness. For instance, if the insured suffers a heart attack while driving, the PA policy will not pay, because the cause of death was natural.
2. No cash value or bonus
PA insurance is unlike life insurance that accumulates cash value that the policy owner gets upon cancellation of the contract or at maturity. It is unlike motor insurance either where a no claim bonus in terms of premium discount is given if no claim has been made during the earlier policy period.
3. No tax relief
In Malaysia, some insurance policies offer tax relief. For instance, life insurance policies get a tax relief of up to RM6,000. While education and medical policies get RM3,000. PA insurance, however, is not entitled to any tax relief.
As always, it is best to do your research before you decide on insurance. Speak to an experienced insurance agent or financial advisor to get expert views on the matter, post your queries on the insurance forum here.