Accident Insurance

Accident insurance is coverage that pays stated benefits when the insured suffers a bodily injury caused by an accident. The National Association of Insurance Commissioners defines it in one line, as insurance for unforeseen bodily injury, and describes an accident-only contract as one providing coverage, singly or in combination, for death, dismemberment, disability, or hospital and medical care caused by or necessitated as a result of an accident or specified kinds of accident. Payment usually runs off a schedule attached to the policy: a set amount for an emergency room visit, another for an ambulance, another for a fracture, another for each night in hospital. The benefit is paid to the insured and is not calculated from the medical bill.

The regulatory position is unusual, and it is the fact most worth knowing. Federal law sorts supplemental products into tiers with different conditions attached. 42 USC 300gg-91(c)(1) is headed "Benefits not subject to requirements" and its first entry is "[c]overage only for accident, or disability income insurance, or any combination thereof." No condition follows. 45 CFR 148.220(a) says the same thing more plainly, under the heading "Benefits excepted in all circumstances", listing "[c]overage only for accident (including accidental death and dismemberment)" first. Compare the neighbors: limited scope dental or vision benefits are excepted only if offered separately, and coverage for a specified disease, or hospital indemnity and other fixed indemnity insurance, only if offered as independent, noncoordinated benefits. Accident coverage carries no such gate, which means a policy does not lose its status by being structured or sold in a particular way, as long as it is coverage only for accident.

The parenthetical is doing real work. Accidental death and dismemberment coverage appears inside 45 CFR 148.220(a)(1) rather than in a paragraph of its own, which places it as a species within the accident category rather than as a separate category. In the market the two are sold under different names and often to different buyers, but the regulatory home is the same.

What accident insurance actually insures is a cause, not a consequence. This is where expectations most often break. A policy pays because an accident produced the injury, so a fractured hip after a fall is a covered event and an identical fracture caused by bone disease is not. Contracts define an accident, usually as something sudden, unexpected and external, and commonly exclude injuries arising from illness, from certain sports or occupations, from intoxication, and from self-inflicted harm. Reading the definition and the exclusions is the whole of due diligence on one of these policies, because the benefit schedule is easy to read and the trigger is not.

How it pays, and how that differs from the products beside it. Accident insurance is not subject to the fixed-dollar requirement that federal regulation imposes on hospital indemnity and other fixed indemnity insurance, which sits in a different paragraph and applies to a different category. In practice most accident policies pay scheduled amounts anyway, because a schedule is simple to administer and easy to price. The difference from its neighbors is in the trigger: hospital indemnity pays for time in hospital whatever caused the admission, critical illness insurance pays on a named diagnosis, disability insurance pays a recurring benefit while the insured cannot work, and accident insurance pays for injury however brief and whatever the effect on earnings.

The consequences of excepted-benefit status apply here as elsewhere. There is no out-of-pocket maximum, no required package of benefits, no bar on annual or lifetime dollar limits, and no general prohibition on medical underwriting. 45 CFR 149.20(b)(1) also puts excepted benefits outside the federal surprise-billing protections. On the tax side, IRC 223(c)(1)(B)(ii) disregards "coverage (whether through insurance or otherwise) for accidents" when testing eligibility to contribute to a health savings account, so an accident policy never interferes with one. That is a different statutory route from the one covering hospital indemnity and specified disease policies, which reach the same result as permitted insurance under IRC 223(c)(3), and it is worth noticing only because it shows how deliberately the statute keeps these products out of the way of the account rules.

1. You buy the policy, commonly through an employer at open enrollment, and the premium is usually a small monthly amount for a family.

2. An accident happens, and the injury must fit the contract's definition of an accident rather than the ordinary meaning of the word.

3. You file a claim with the accident insurer, separately from any health plan claim, and typically with the medical records that identify the injury and the treatment.

4. The policy pays the scheduled amounts for each covered item: the ambulance, the emergency visit, imaging, the fracture, follow-up therapy, a hospital admission.

5. The money is yours. It is paid on the schedule rather than against a bill, so it does not pass through the health plan and does not count toward the plan's deductible or out-of-pocket maximum.

A hypothetical. Kwame pays $18 a month, or $216 a year, for family accident coverage with a schedule paying $200 for an ambulance, $250 for an emergency room visit, $600 for a leg fracture and $300 per night for a hospital admission. His daughter breaks her leg and spends one night in hospital after an ambulance ride. The policy pays $200 plus $250 plus $600 plus $300, which is $1,350, and the payment is made to Kwame regardless of what the hospital charged or what the family's health plan paid. Against the family's $3,000 health plan deductible the benefit covers 45 percent of the year's cost sharing in a year when a covered accident happened, and nothing in a year when one did not.

Pros

• Benefits are cash to the insured, so they can go toward a deductible, lost income, travel or anything else.
• The schedule is published, so what the policy pays for a given injury can be known before buying it.
• The benefit is calculated from the policy's own schedule rather than from the medical bill, so it arrives as cash on top of whatever a health plan does.
• It is excepted from the federal health insurance requirements in all circumstances, and it is disregarded for health savings account eligibility, so it never creates a conflict with other coverage.
• Group premiums are usually low, which makes the downside of being wrong about it small.

Cons

• The trigger is the cause of the injury, so an identical injury from illness pays nothing.
• Definitions of "accident" and the exclusion lists do the real work, and they vary between contracts that look alike.
• Excepted-benefit status means no out-of-pocket maximum, no required benefit package, no bar on dollar limits, and no federal surprise-billing protections.
• Scheduled amounts are fixed, so they do not grow with medical costs or with a rising deductible.
• It is not health coverage and satisfies no coverage requirement, so it is an addition to a health plan rather than a substitute for one.