What are Tax Implications of Personal Accident Insurance?

An accident can occur at any time, while you are at work, at home or while you are driving on the road, and sometimes these accidents can have serious consequences. Apart from the mental and physical trauma, the accidents also result in severe financial losses in the form of substantial medical bills and loss of income. Most life and health insurance policies do not offer adequate protection against such causalities.

In such a situation, investing in personal accident insurance is a great way to get financial protection against unfortunate events. According to WHO (World Health Organisation) Global Report on Road Safety 2018, India accounts for nearly 11% of the accidents recorded around the world. As per The Ministry of Road Transport & Highway, more than 1000 road crashes occur in India every day, and two-wheelers account for about 25% of total road accident deaths. These figures are alarming and stress on the importance of having a personal accident cover. 

As people are slowly realising the importance of a personal accident policy, they are also investing in it to secure their finances and to get tax benefits. But, before discussing the tax benefits of personal accident insurance, let us discuss the types of personal accident insurance policies available in India and what it covers. 

Accidental Insurance is broadly classified into two categories – Individual Accident Insurance and Group Accident Insurance. 

Individual Personal Accident Insurance

As the name suggests, this type of policy guards an individual against accidental damages. It typically covers disability, loss of life, and loss of limbs. 

Group Accident Insurance

Group Accident Insurance is generally taken by a company to cover its employees. Depending on the size of the company, and the number of employees, some insurance companies offer a discount on the premium. It is beneficial for the small organisations as it allows them to provide an insurance cover to the employees at low cost. However, you must know that as compared to an individual plan, it offers only a basic cover. 

What Does Personal Accidental Insurance Cover?

A personal accidental policy provides the following coverage benefits:

  • Coverage against Accidental Death

An accident can have a devastating effect on the family, both emotionally and financially. In case of fatal consequences, the insurance company, pays a compensation equal to the sum assured to the appointed nominee. 

  • Permanent Total and Partial Disability

If the accident causes permanent disability or permanent partial disability like loss of limbs, it can lead to loss of income. To compensate for the loss, the insurer pays a certain percentage (as mentioned in the policy document) of the sum insured. 

  • Temporary Total Disability

If you become bedridden because of accidental injuries, the insurance company will pay a weekly allowance to compensate for the loss of income. You can use the amount to pay the EMIs (if any) and take care of other regular expenses. 

When is Personal Accident Insurance Eligible for Tax Deduction?

It is a common misconception among people that insurance is always subject to tax deduction. But, the truth is you can get tax deduction on personal accident insurance only under a specific condition. You can take advantage of tax deduction, if you can successfully demonstrate that the premium is paid to protect your taxable income.

If you are a small business owner, and are paying the insurance premium to secure your earning capacity, you can avail personal accident insurance tax benefit. 

What if Personal Accident Cover is Available with Life Insurance?

There are now life insurance policies that come with coverage against personal accidents. In such policies, the policyholder must calculate the portion of premium that goes for life insurance and the part that goes to the accident cover. You can claim tax benefits only on the part of the premium that is paid for life insurance. No deduction in income tax is available for the portion paid towards accidental cover. 

Remember, there is much more to insurance than just the tax benefits. The primary function of insurance policies is to offer financial protection against unexpected incidents. Personal accident cover is an effective way for individuals and families to get the financial assistance that could help them get back on their feet after suffering a major disaster.  
Learn more about the advantages of personal accident insurance in detail!