Mohan Shinde (an illustrative profile) is 38, runs a small electrical contracting business in Nashik and earns about ₹9 lakh a year. He rides a two-wheeler to sites across the city. He has a term plan and a family health policy, and assumes that covers everything. Then a friend in the same trade falls from a ladder: the hospital bill is paid by insurance, but he cannot work for eight months and has no income at all.
That gap, income lost to accident or illness, is what the covers in this chapter are designed to fill. Some are inexpensive and close holes that families only discover after an event. Others are optional, and it helps to know which is which.
In this chapter
- What personal accident cover pays, and how to size it
- How critical illness cover differs from health insurance
- How to insure a home correctly, structure and contents
- What motor insurance the law requires, and what is optional
Personal accident cover: protecting income
A health policy pays the hospital. A term plan pays only on death. Neither pays you for the months, or years, you cannot work after an accident. A personal accident (PA) policy does. It typically pays a fixed sum for accidental death, the full sum for permanent total disability (you can never work again), a percentage for permanent partial disability (such as loss of a finger or an eye, according to a schedule) and, in some plans, a weekly amount during temporary total disability.
PA premiums usually depend on your occupation rather than age, so they stay modest for desk workers and rise for physical or hazardous work. It matters most for self-employed people like Mohan, who have no employer disability benefits, and for anyone with long daily commutes.
Worked example 1: sizing PA cover
Assumptions, illustrative: Mohan's family spends ₹45,000 a month. If he were permanently disabled, a lump sum would be invested to earn about 7% a year.
- Annual household need: ₹45,000 × 12 = ₹5.4 lakh.
- Income from a ₹50 lakh PA payout at 7%: ₹50 lakh × 7% = ₹3.5 lakh a year.
- Share of needs covered: ₹3.5 lakh ÷ ₹5.4 lakh ≈ 65%. The rest would come from savings, a spouse's income or drawing down the capital.
- Conclusion: a PA cover of ₹50 lakh to ₹75 lakh, roughly 5 to 8 times his income, would meaningfully protect the household. Note that ₹50 lakh earning 7% does not keep pace with inflation forever, so more cover buys more years.
Critical illness cover: a lump sum for recovery
A critical illness (CI) policy pays a fixed lump sum when you are diagnosed with a listed illness, such as certain cancers, a heart attack or stroke, and survive a short survival period (often around a month). The money is yours to use as you choose: replacing income during treatment, paying for home care, travel or diet changes that health insurance does not cover, or clearing an EMI.
- Read the list of illnesses and their definitions; a claim depends on the exact wording, including the severity stated.
- Expect an initial waiting period, often 90 days, and a survival period after diagnosis.
- A standalone CI policy often has wider definitions than a rider attached to a term plan.
Worked example 2: sizing CI cover
Assumptions, illustrative: after a serious diagnosis, Mohan cannot work for 12 months. Household spending is ₹45,000 a month, the home loan EMI is ₹25,000 a month and non-medical costs (travel, home care, diet) are about ₹2 lakh.
- Household spending for a year: ₹45,000 × 12 = ₹5.4 lakh.
- EMIs for a year: ₹25,000 × 12 = ₹3 lakh.
- Non-medical costs: ₹2 lakh.
- Total: ₹5.4 lakh + ₹3 lakh + ₹2 lakh = ₹10.4 lakh, so CI cover of about ₹10 lakh, less any emergency fund he can spare.
CI is not a substitute for health insurance: Critical illness cover pays a fixed amount once per listed illness; health insurance pays actual hospital bills, potentially several times a year. CI sits on top of a good health policy, not in place of it.
Home insurance: the most underused cover
For most families the home is the largest asset, yet few insure it. Home insurance can cover the structure against fire, earthquake, flood and similar perils, and the contents (furniture, appliances, electronics, valuables) against those perils and burglary. Premiums are low compared with the cover.
The key is to insure the structure for its reconstruction cost, not its market value. A flat's market price includes land and location, which a fire does not destroy. For example, with an illustrative construction cost of ₹2,500 per sq ft, a 1,050 sq ft built-up flat needs structure cover of about ₹26 lakh, even if it would sell for ₹90 lakh. Contents are insured separately; list major items with rough values. If your lender arranged a policy with your home loan, check whether it covers contents and whether the sum insured is still adequate.
Motor insurance: compulsory and optional
Under the Motor Vehicles Act, third-party liability cover is compulsory for every vehicle on a public road. It pays for injury, death or property damage you cause to others. Own-damage cover pays for repairs to your own vehicle after an accident, theft or natural calamity, and is optional. Add-ons such as zero depreciation (no deduction for wear on replaced parts) and engine protection suit newer vehicles; for an old, low-value vehicle, third-party cover with a higher voluntary deductible may be enough.
When each cover matters
| Cover | Most useful when | Can usually skip or reduce when | Size it by |
|---|---|---|---|
| Personal accident | You are the main earner, self-employed or commute daily | Strong employer PA and disability benefits already exist | 5 to 10 times income, or the corpus your family needs |
| Critical illness | Family history of serious illness, or thin savings | Savings already cover a year or more of income and EMIs | About a year of expenses, EMIs and non-medical costs |
| Home | You own your home or valuable contents | You rent and own few valuables (consider contents only) | Rebuild cost for structure; list value for contents |
| Motor own-damage | Vehicle is new or valuable | Vehicle is old and low in value | The vehicle's insured declared value |
Common mistakes to avoid
- Buying add-ons before basics: a CI policy is no help if there is no health cover for the hospital bill.
- Insuring the flat at market value: you pay for cover you can never claim, since land is not destroyed.
- Not telling the insurer about occupation changes: PA premiums and claims depend on what you do.
- Driving on lapsed third-party cover: it is illegal and leaves you personally liable for injury to others.
- Ignoring CI definitions: two policies covering "heart attack" can define it very differently.
Try this yourself: Work out what your household spends in a year, including EMIs. That one number tells you roughly how much critical illness cover you need, and a multiple of it suggests your PA cover. Then check whether your home insurance, if you have one, uses rebuild cost. The tools page can help with the arithmetic.
Frequently asked questions
Is personal accident insurance worth it if I have term insurance?
Yes, for most earners. A term plan pays only on death, while disability can be financially worse because the family loses income and still has to support you. PA cover fills that gap at a modest premium.
Should I buy a critical illness rider or a standalone policy?
A rider is convenient but often has narrower definitions and may end if the base policy ends. A standalone policy usually lists more illnesses and can be sized separately. Compare the definitions, not just the price.
Does home insurance cover flood damage?
Standard home policies commonly cover floods, storms and earthquakes as named perils, but wording varies. Check the list of perils and exclusions, especially if you live in a low-lying area.
Is zero depreciation cover necessary?
It is most useful for vehicles in their first few years, when parts are costly and depreciation deductions would otherwise reduce your claim. For older vehicles the extra premium is often not worth it.
For the self-employed, our guide to money management for freelancers covers these gaps further, and the Money n Wealth team can help compare general insurance options.