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. And if you are living in Malaysia and have dealt with insurance agents before, chances are you have come to realize that it 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 own reason(s) for not wanting to purchase life insurance. While others, may not have the luxury of choice. If you fall in 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 buy life insurance are:
1. Your Age
Life insurance generally is eligible to those below the age of 65. This does not mean that it won’t cover a person over 65 years old. It simply means that once you are 65, you can no longer purchase a life insurance. If you have bought the life insurance earlier, your life policy can protect you and your family up t0 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 is one of the reasons why you are always advised to purchase life insurance at a young age, so you can carry your life insurance to an old age.
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, 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 the 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 excluded, the insurer will not cover any cancer-related medical cost and no pay out will be made in the event of death from cancer. This is why it is to your advantage to get life insurance at an early age, when you are still healthy and do not have any of the pre-existing conditions.
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 for a life insurance start 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 the perhaps the furthest thing from their minds.
- Older people and/ or those medical pre-condition and family history – Although age or having pre-existing medical condition may not out right disqualify you from purchasing life insurance, the price of life insurance in these cases may become too expensive.
So what is the alternative to Life Insurance?
If you fall into any of the above group, but still want some form of insurance coverage, here is an alternative you can consider.
Personal Accident Insurance as an alternative to Life Insurance
What is personal accident insurance?
Personal accident insurance or PA is a 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 a 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, i.e 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 their 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 is why buying PA insurance is very simple compared to life insurance.
3. It is cheaper
Personal accident insurance is much cheaper compared to life insurance due to its restrictive and limited coverage. Often times you can get it for free together with other insurances. Again taking Syarikat Takaful Malaysia as an example, 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. A life insurance with the same sum insured can cost more than RM 2,000 per year. This is more than 10 times of 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.
4. You can buy it short term
Another big advantage that personal accident has over life insurance is that you can buy it yearly. Most life insurance have a minimum duration of 5 years. This 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 exclude dangerous sports and life style from the 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 provide protection for 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
PA insurance only covers against accidental death, no coverage against natural death, i.e. death occurring in the course of nature and from natural causes such as age or disease as opposed to accident or violence. For instance, if the insured suffers a heart attack while driving, the PA policy will not offer any pay-out.
2. No cash value or bonus
PA insurance is unlike life insurance that accumulates cash value that the policyowner 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 gets a tax relief of up to RM6,000. While education and medical policies gets RM3,000. PA insurance however, is not entitle to any tax relief.
As always, it is best to do your own research before deciding on a policy that is best suited for you and there can always be better alternatives such as personal accident insurance in this case. Speak to an experienced insurance agent or financial advisor to get expert views on the matter, simply post your queries on the insurance forum here.
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