[sniplet SMR-2011-Update]

Resolution #2:
I want to purchase disability insurance (commonly called personal accident insurance) for both myself and D.

I strongly believe that once you have the foundations — an emergency fund, health insurance, and zero-debt — in place, your next step ought to include having a disability or personal accident insurance in place for each family member who you believe faces this risk. In our case, both D and I need to have individual policies since we both face this risk.

I had done some research a few months back and had observed that there are basically two types of disability/personal accident policies on offer:

1. Those that pay a fixed lumpsum one-time, and
2. Those that pay a fixed sum each month for a certain number of years.

The one-time fixed lumpsum model (such as this policy) is the most common type on offer. If you opt for such a policy, it makes sense to purchase the highest possible cover for the longest duration since you pay a one-time premium for the entire duration. I’m not too keen on this model because the payout is 100% upon accidental death (and hence of no use to you and you’d be better off buying a cheaper term life insurance plan) and between 25% to 100% depending upon what portions of you become disabled (example: for a Rs 10 lac policy you’ll only get Rs 2.5 lac if you lose one eye and the policy most often ceases at that point).

The fixed sum each month model (such as this policy) are not widely on offer. And it’s close to impossible to extract any information from the insurer on such policies. But I really like this model — a fixed-sum (you can set this amount to be equal to your monthly living expenses) each month for the next several years (up to 20!) in the event of a disability. That’s much much better and is what you’d typically want were you to become disabled.

However, I’m yet to decide which model to opt for and I’d love to hear your thoughts on this before I go ahead and make a purchase. What would you suggest?

Update: I had followed-up on this post with another one asking if we (D & I) really needed to have a disability/personal accident cover. My conclusion was that since both D and I work, I’ll buy a policy only in one of our names since this would cover us even in the worst scenario. And then I did absolutely nothing for the rest of the year! Guess I’ll have to carry this one forward.