Personal Accident Insurance Explained
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What is personal accident insurance?
Personal accident insurance is a type of cover that pays you a benefit if you’re injured in an accident and can’t work. It’s designed to replace lost income during your recovery, helping you keep up with everyday expenses like rent, bills, and groceries.
In simple terms, if an accident stops you from earning, this cover steps in to support you financially. Depending on your policy, payments can be made as a monthly benefit for a maximum period of time.
For example, if you broke your arm and couldn’t work for several weeks, personal accident insurance could provide payments to help cover your income while you recover.
What does personal accident insurance cover?
Personal accident insurance typically covers you if an injury prevents you from working and earning an income. The exact cover can vary by policy, but most include the following:
- Loss of income due to injury
- Temporary disability
- Permanent disability
- Accidental death
Some policies also include optional extras, which can provide additional support during recovery:
- Rehabilitation costs
- Medical expenses not covered elsewhere
- Business expenses if you are self-employed
- Childcare or home support services
The level of cover and inclusions will depend on the policy you choose, so it is important to compare options carefully.
What’s not covered by personal accident insurance?
Personal accident insurance only covers injuries caused by accidents, so there are several situations where you generally won’t be covered. Common exclusions include:
- Illness (unless specifically included in the policy)
- Pre-existing conditions
- Intentional or self-inflicted injuries
- Incidents involving drugs or alcohol
- High-risk activities such as extreme sports, depending on the insurer
Because policies can differ, it’s important to read the Product Disclosure Statement (PDS) carefully to understand exactly what is and isn’t included in your cover.
How does personal accident insurance work?
Personal accident insurance works by paying you a benefit if you are injured in an accident and unable to work, helping replace your lost income while you recover.
To keep the cover active, you pay a regular premium, usually monthly or annually. If you make a claim, two key timeframes determine when and how long you are paid:
- Waiting period: The time you need to be off work before payments begin. It is commonly between 7 and 30 days, although some policies may offer longer options.
- Benefit period: The length of time you will receive payments once your claim is approved. Depending on the policy, this could be a few months or extend to a couple of years.
In simple terms, the waiting period affects when your payments start, and the benefit period affects how long they continue. Choosing a longer waiting period can lower your premium, while a longer benefit period can provide more financial support if your recovery takes time.
Types of personal accident policies available in Australia
Accidental insurance generally covers you for up to 70% of your income and mainly offers a monthly benefit from 2 years up to 65 years. Like income protection, there are two types of Accidental Injury policies available:
Indemnity Policies
Indemnity Policies protect up to 70% of your income, but you are not required to provide proof of income at the time of your application.
Agreed Value Policies
On October 1, 2021, big changes were made to Retail Income Protection policies following new rules from APRA to ensure policies were more sustainable. Before this, Agreed Value income protection policies, which locked in a set benefit amount even if your income changed, were already taken off the market in April 2020. This means they hadn’t been available for quite some time before these new changes kicked in.
How much does personal accident insurance cost?
The cost of personal accident insurance can vary depending on your situation and the level of cover you choose, but it is generally more affordable than income protection insurance.
Several factors influence how much you will pay:
- Age: Premiums tend to increase as you get older.
- Occupation: Higher-risk jobs, such as manual or trade work, usually attract higher premiums.
- Cover amount: The more income or benefit you want to insure, the higher the cost.
- Waiting period: Choosing a longer waiting period can reduce your premium.
- Benefit period: Longer benefit periods may increase the cost, as the insurer may need to pay you for a longer time.
In general, people can expect personal accident insurance to cost anywhere from a relatively low monthly amount to more depending on their risk profile and coverage choices. As a rule of thumb, selecting a longer waiting period is one of the simplest ways to lower your premium while still maintaining protection.
Is personal accident insurance worth it?
Personal accident insurance can be worth it if you rely on your income and would struggle to cover your expenses if an injury stopped you from working.
It is often most valuable for people who do not have a financial safety net, such as:
- Self-employed workers and sole traders
- Contractors and freelancers
- Casual employees without paid sick leave
- People in higher-risk jobs, such as tradies or manual workers
In these situations, even a short period off work can lead to lost income, making it difficult to keep up with everyday costs. On the other hand, it may be less necessary if you already have strong protections in place, such as generous sick leave benefits or comprehensive income protection insurance that covers both illness and injury.
Ultimately, it comes down to your personal situation. If you could not comfortably manage your expenses without income for several weeks or months, personal accident insurance can provide peace of mind at a relatively affordable cost.
Personal accident insurance vs income protection
Personal accident insurance and income protection both help replace your income if you can’t work, but they differ in what they cover and how comprehensive they are.
The key difference is that personal accident insurance only covers injuries caused by accidents, while income protection also covers illness, which is a more common reason people are unable to work.
In general, personal accident insurance may suit people looking for a lower-cost, simpler option focused on injury cover, while income protection is better suited to those who want broader protection that includes both illness and injury.
How to choose a personal accident insurance policy
Choosing the right personal accident insurance policy comes down to finding a balance between cost and the level of protection you need.
Here are the key things to consider:
- Level of cover: Make sure the benefit amount is enough to help cover your regular expenses if you cannot work.
- Waiting period: A longer waiting period can lower your premium, but you will need to rely on savings to cover the gap before payments begin.
- Benefit period: Consider how long you may need support if you are unable to work, as longer benefit periods provide more protection but may cost more.
- Exclusions: Check what is not covered, especially if your work or lifestyle includes higher-risk activities.
- Insurer reputation: Look for an insurer with a strong track record for claims and customer service.
Taking the time to compare these factors can help you choose a policy that fits your needs without paying for unnecessary extras.
Frequently Asked Question and Answers
What does personal accident insurance cover?
It typically covers injuries caused by accidents that prevent you from working, including temporary or permanent disability and accidental death. Some policies may also include optional extras like rehabilitation or medical support.How much does personal accident insurance cost?
The cost depends on factors such as your age, occupation, level of cover, and policy settings like waiting and benefit periods. It is generally more affordable than income protection insurance.Is personal accident insurance worth it?
It can be worth it if you rely on your income and do not have paid sick leave or sufficient savings to cover time off work due to an injury.What is personal accident insurance for?
It is designed to provide financial support if you are injured in an accident and cannot work, helping you manage expenses while you recover.Which injuries are not covered?
Most policies do not cover injuries related to illness, pre-existing conditions, intentional harm, or incidents involving drugs, alcohol, or high-risk activities, depending on the insurer.
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