Is accident insurance worth it for you? Here's how to tell

Owning accident insurance isn't essential for everyone. However, there are plenty of scenarios where it's a smart purchase based on your lifestyle choices and coverage needs.

Insurance policies rarely provide 100 percent protection. For example:

  • Property insurance has deductibles that you cover out of pocket before the insurance company pays on a claim.
  • Health insurance policies also have deductibles, as well as co-pays and co-insurance.
  • Disability insurance policies require waiting periods before they provide benefits and that income is usually less than the total income amount you’re losing by not working.

So how do you cover those gaps, especially if your out-of-pocket costs are in the thousands of dollars? You may have to take on medical debt. Another option is to tap into your savings.

A third option is supplemental insurance. One common type of supplemental insurance is accident insurance.

Accident insurance is designed to provide a financial benefit to help cover the costs of being injured in an accident. The policy pays out a benefit if you are injured in a manner listed in the policy.

Accident insurance cost vs. benefits

Accident insurance is fairly inexpensive. Most policies cost between $6 and $20 a month for people who are young and healthy. It can cost up to $50 a month for older individuals. However, many accident insurance policies also have deductibles before benefits are paid.

Policies typically vary the payout of benefits based on the type and severity of your injury.

For example, one policy has a payout of around $200 if you incur second-degree burns on less than 10 percent of your body. Third-degree burns provide a benefit of $1,000. Another company offers $5,000 for third-degree burns on one-third or more of your body.

In another example, you could get $600 for a broken rib requiring surgery, but $7,500 for a fractured femur that requires surgery.

Another company offers $800 payments for qualified hospital admissions, $200 per day for hospital stays, and up to $100 for an emergency room visit caused by an accident.

For the most serious injuries, you may receive tens of thousands of dollars. These include being in a coma, loss of sight or hearing, losing the ability to speak, and the loss of one or more limbs.

Alternatives to accident insurance to consider

The closest alternative to accident insurance is accidental death and dismemberment (AD&D) insurance. This is a type of policy that pays a benefit if you die or lose a limb in an accident.

Some people use AD&D as an alternative to life insurance. It’s less expensive than traditional life insurance and does not require underwriting. Plus, many people assume that an early death will likely be accidental, so AD&D coverage can meet the need that traditional life insurance is meant to cover.

AD&D is not a good alternative to regular accident insurance because it only pays if you die or are seriously injured.

Plus, some accident insurance policies include AD&D benefits.

Another similar type of supplemental policy is hospital indemnity insurance. This is a type of policy that helps cover the costs of hospital admission.

Plans typically provide benefits to you when you are admitted to a hospital or ICU for a covered sickness or injury. However, there are some policies that will also pay a benefit for outpatient surgery, emergency room visits, stays in a rehabilitation facility, and ambulance services.

Hospital indemnity policies typically pay a lump sum directly to you, not a hospital or medical facility. That means you can use the benefit for any purpose, whether to cover the cost of care or for a non-related purpose.

Its advantage over accident insurance is that it covers illnesses in addition to accidents. Its main disadvantage is that you only receive a benefit if your injury is serious enough to warrant hospitalization.

Many people also supplement their health insurance coverage with a health savings account (HSA).

An HSA is like a personal savings account, only the money is designed to cover health care costs. The money you contribute to an HSA reduces your taxable income.

HSA funds can be used for nearly any type of medical expense, including prescription drugs, which makes it more flexible in some ways than accident insurance.

On the other hand, you must use HSA money specifically for medical expenses. That isn’t the case for accident insurance, which pays a benefit based on the injury you suffer but typically does not stipulate you have to spend that money on medical expenses.

In addition, only people enrolled in a high-deductible health care plan can set up an HSA. Plus, you must have the funds in your HSA account in order to use it to cover medical expenses. If you have a serious accident a few months after setting up your HSA, you likely won’t have enough money in it to cover expenses.

Do I need accident insurance?

Accident insurance is like many types of optional policies: You don’t want to buy it, you hope you never use it, BUT you’ll be glad you have it if the need does arise.

Any type of serious accident will likely leave you with an out-of-pocket expense not covered by your existing insurance.

For example, according to HealthCare.gov, the cost of fixing a broken leg is up to $7,500. Your health insurance may only cover 80 percent of that bill, leaving you a balance of $1,500 to pay out of pocket. An accident plan can cover a portion of that amount and leave you with less of a financial burden.

The more serious the injury, the more you’ll benefit from an accident policy. HealthCare.gov reports the average cost of a three-day hospital stay is $30,000. If health insurance covers 80 percent, your out-of-pocket share will be $6,000. One popular accident insurance policy on the market would cover $1,400 of that cost.

People who should strongly consider an accident insurance policy include:

  • Self-employed people who don’t have paid sick leave and could use accident insurance benefits to make up for lost income.
  • Those who don’t have a Health Savings Account (HSA).
  • People with an active lifestyle. If you spend a lot of time bicycling, rock climbing, skiing, or playing sports, you’re more at risk of injury than if you lead a more sedentary lifestyle. Therefore, you have more need for accident insurance.
  • Parents with children. Kids are also prone to accidents. An accident insurance policy can help cover costs beyond what your health insurance will cover.
  • Anybody who doesn’t have or doesn’t want to use emergency savings for accidents.

Joel Palmer is a freelance writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.

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