Personal accident and sickness cover is quite different from permanent health insurance. Here’s why

When discussing personal accident and sickness insurance, what is most important is that this type of cover is not to be confused with permanent health insurance.

Personal accident insurances are benefit policies, as opposed to indemnity policies, whose claims are settled by payment of the agreed benefit. However, the principle of indemnity is preserved as far as possible by granting policies only to provide benefits equating to those justified by an insured’s financial standing.

The origins of this type of policy lie in the demand for personal accident insurance that grew out of the perceived dangers of nineteenth century rail travel. Modern policies cover death or injury (and possibly sickness) from almost any accidental cause though there are standard exclusions.

The policy is an annual contract and the insurer can decline cover, or impose new terms at each renewal, depending on the claims experience. It is therefore classified as general rather than a life or permanent health insurance.

Personal accident cover is available under a stand-alone policy, though is often included in a motor or travel policy, and can be offered as an add-on under a home insurance policy.Various forms of cover are available, the most common of which are: accident only and accident and all sickness, which includes disablement by illness and injury by accident in specified circumstances, such as occupational accidents, pastimes, sports and travel.

There is an important restriction on an accident only policy. It only pays a benefit where the policyholder is injured accidentally. This definition excludes diseases resulting from natural causes, but if the disease is caused by an accident it will generally be covered though some policies specifically exclude it.

A typical definition of an accident only policy is : “Bodily injury resulting solely and directly from an accident caused by outward violent and visible means, which shall directly and independently of any other cause result in death or disablement or medical expenses.”

This wording can be interpreted as follows:

Bodily injury – this term excludes disease from natural causes, although modern policies may include disablement caused by shock, even though this is not strictly injury.

Solely and directly – the injury must be caused solely and directly by the accident. The doctrine of proximate cause applies.

Accident – an accident is an unexpected event; not intended or designed.

Outward violent and visible means – there must be an outside agency involved for a claim to be covered. A distinction must also be made between cause and effect. The cause of the accident must conform to the definition (the smallest violence suffices) but the effect need not be external or visible, as long as it is injury.

Therefore, if a policyholder falls and breaks his leg that is an event that is covered. If he has a heart attack induced as a result of the fall and injury, the costs associated with both the broken leg and heart attack are covered. If later in hospital he catches MRSA and dies that would be a separate incident and there would, at that point, be a break in the chain of causation so that would not be covered.

The distinction between accident and sickness is not so relevant where both are covered.

In the event of a claim, personal accident policies can pay either defined lump sum (capital) benefits or weekly income benefits.

Death or permanent injury claims are settled by payment of a capital benefit, or, in some cases, an annuity.

Temporary disablement claims are settled by payment of a defined weekly sum. For death claims, insurers normally stipulate that the death needs to occur within 12 months of the event that gives rise to the claim.

A capital benefit is also paid for loss of sight in one or both eyes and loss of one or more limbs. Loss of limbs is generally defined as: “The loss by physical severance or the total and permanent loss of use of an entire hand or arm, or of an entire foot or leg.”

As with the death benefit this is normally payable only if the loss of limb occurs within usually 12 months or 24 months of the accident causing the injury.

A capital benefit however may not itself be paid for many months, or more than a year after the accident, as it may take that amount of time for a medical referee to confirm that the disablement is both total and permanent.

In such cases, the insured will normally qualify for a weekly payment in respect of temporary total disablement, in the interim period.

As an alternative to paying weekly benefit under the heading of temporary total disablement, some insurers specify that the compensation payable for permanent total disablement is a weekly benefit for the first two years, plus a lump sum or annuity at the end of this period if the condition continues.

Other insurers may underwrite their personal accident policies on the basis that compensation is payable under only one heading and insist that the weekly benefit is deducted from the eventual capital benefit for permanent total disablement.

The policy definition of permanent total disablement varies between insurers, according to the extent of cover that they are prepared to offer. A common example is: “Permanent total disablement from gainful employment of any and every kind; permanent total disablement from the insured’s usual occupation and any other occupation for which the insured person is fitted by knowledge and training; permanent total disablement from the insured person’s usual occupation.”

Therefore, a valid claim for permanent total disablement under one policy may not qualify as such under another depending on the policy wording.

Apart from the capital benefits described so far, cover is also provided in the form of a weekly benefit where the disablement is temporary, rather than permanent.

This section provides cover for temporary total disablement from engaging in the insured’s usual occupation due to accident or sickness.

The weekly benefit is usually paid up to 104 weeks, although some insurers provide cover for up to five years.

The other main heading under which disability cover may be provided is temporary partial disablement.

This provides a lower level of weekly benefit than temporary total disablement.

A personal accident policy will include medical expenses cover, but a payment under this section is linked to the weekly disablement benefit and will not be paid in isolation. This is only a nominal form of medical expenses cover and is not a valid substitute for private health insurance.

One final benefit that is commonly provided under a personal accident policy is legal expenses cover.

This covers the costs (up to, say, £15,000) of pursuing a claim against a third party who is responsible for causing injury to the insured.

Like the nominal medical expenses cover, this is a relatively restricted benefit and wider cover is available under a separate legal expenses policy, or an extension under a home insurance policy.

Specified age ranges apply to the inception of personal accident and sickness cover. Usually accident cover is restricted to those aged between 16 and 70, and for sickness between 16 and 60.

Existing policyholders can usually extend cover for 10 years beyond the upper limit.

Personal accident and sickness policies that cover the whole family have also grown in popularity in recent years, as people have become more aware of rising costs in areas such as private nursing and home help.

For an example of the type of benefits that might be provided under this type of policy see box below.

Typical exclusions under a personal accident policy are:

• Injury caused while the insured is under the influence of alcohol. Intoxication other than by alcohol may also be excluded

• Injury caused while under the influence of, or affected by, drugs is excluded, but prescribed drugs are normally covered unless they are prescribed for the treatment of drug addiction

• The insured person wilfully exposing themselves to needless peril, except in an attempt to save human life. Self-inflicted injury, disease, or attempted suicide, is also excluded

• Ailments which occur within 21 days of commencement and which the insured may have contracted prior to inception.

In addition to the exclusions mentioned above, the personal accident policy also excludes bodily injury resulting from: the insured person suffering from any physical defect or infirmity that existed prior to the accident; the insured person engaging in air travel other than as a passenger on a commercial aircraft, or engaging in defined activities; and childbirth, pregnancy, venereal disease, or AIDS, war or associated risks.

Family personal accident and sickness policy benefits

Insured and spouse Children 3-17
Death £25,000 £1,000
Loss of limbs/eyes £25,000 £25,000
Temporary total
disablement £50 per week nil