What Is Accident Insurance?

How Does Accident Insurance Work?

Accident insurance can provide extra coverage that goes beyond your health insurance plan. If you pay your premiums and experience an injury that's covered by your policy, you can file a claim, pay your deductible, receive your benefit and use that money any way you like. You might put it toward:

• Out-of-pocket medical costs like health insurance copays and deductibles
• Medical supplies and medications
• Lost wages if your injury has impacted your ability to work
• Transportation to medical appointments
• Child care while you're healing

You could also use this money to replenish your savings account, invest or make progress toward another financial goal like paying down debt.

Accident insurance isn't the same as disability insurance, which replaces your income if you're unable to work due to a temporary or permanent disability. Instead, accident insurance is meant to provide extra coverage on top of your other policies. That can help keep your finances intact if you're injured.

What Does Accident Insurance Cover?

Every policy and insurance company are different, but accident insurance generally covers the following situations:

• Injuries that require emergency care: That can include broken bones, head and spine injuries, burns and emergency dental work. Accident insurance may also kick in if you need emergency transportation, medical testing or imaging, therapy or surgery.
• Hospitalization: Accident insurance could be valuable if your injuries are serious enough that you need to be admitted to the hospital.

Accident insurance may also provide a payout if the policyholder becomes dismembered or paralyzed, or they suffer an accidental death (in which case the benefit would be paid to the beneficiary).

What Does Accident Insurance Not Cover?

Like any other type of insurance policy, there are exclusions. Coverage may not apply if you suffer an injury that's related to:

• A workplace accident
• An accident that happened before your policy became active
• An act of war
• Being under the influence of drugs or alcohol
• Illegal activity
• Military service
• An excessively risky activity like skydiving or bungee jumping

How Much Does Accident Insurance Cost?

Accident insurance premiums can vary depending on the plan and insurance carrier. An insurance premium is the amount you pay to keep your policy active. If you experience a covered event and need to file a claim, you'll be responsible for paying your deductible before your policy kicks in. How much you'll pay for accident insurance will depend largely on your:

• Deductible amount
• Level of coverage
• Age
• State
• Job (you might pay more if you work in a high-risk field)

Having said that, accident insurance policies typically cost less than $50 per month, according to Policygenius.

Is Accident Insurance Worth It?

Whether accident insurance is right for you depends on factors like your lifestyle, finances and risk tolerance. If you experience a covered injury while you have it, accident insurance could provide much-needed financial relief—even if you have health insurance. For example, if you have a high-deductible health plan, you may have to pay thousands of dollars in medical expenses before your insurer pays their share.

If you have disability insurance, remember that it only applies if an illness or injury prevents you from working. If you were injured severely enough that you required medical attention but were still able to work, disability insurance would not kick in. In this scenario, accident insurance could be a worthwhile back-up policy.

How Much Money Does Accident Insurance Provide?

Accident insurance payouts can vary from one insurer and claim to the next, but benefits tend to be higher for more severe injuries.

Example: You might receive $25 if you suffer a minor laceration that requires stitches, but a payout for third-degree burns could be as high as $10,000. It all depends on the policy.

How to Get Accident Insurance

If accident insurance feels right for you, there are two main ways to secure a policy:

• Go through your employer: If this employee benefit is an option, you might sign up during your company's next open enrollment period. Just be aware that your eligibility may be determined in part by your employer. For example, they may require that you work for the company for a certain amount of time before becoming eligible.
• Purchase a plan on your own: If you don't have access to a workplace plan, you can sign up for an independent accident insurance policy. This can exist alongside your regular health insurance plan. Just keep in mind that some insurers may charge a higher accident insurance premium as you age.

Other Ways to Cover Medical Costs

Accident insurance isn't the only way to reduce out-of-pocket costs after a surprise injury. The following tools could also help protect your finances.

Disability Insurance

Disability insurance can provide a monthly cash payout if you suffer an illness or injury that prevents you from working. In some cases, it could replace up to 70% of lost income. A short-term policy may provide a benefit for several months to a few years, while long-term disability could stay active for the rest of your life. Either way, the cost will depend on your age, gender, health, coverage needs and waiting and benefit periods. For example, a lifetime policy will likely cost more.

Dental Insurance

While some accident insurance policies do cover dental injuries, regular dental care is excluded. Dental insurance typically covers a portion of preventative exams, cleanings and emergency services. That can help reduce your total out-of-pocket costs. You may have access to dental coverage through your employer. Otherwise, most plans start at around $9 a month, according to the health insurance marketplace eHealth.

Health Savings Account (HSA)

An HSA offers a tax-efficient way to pay for certain medical expenses. That can include deductibles, copays, prescriptions, medical supplies and more. You'll need to be enrolled in a high-deductible health insurance plan to contribute to an HSA, but contributions are tax-deductible. That means they'll reduce your taxable income.

When you make a withdrawal, you won't be taxed if the money is used to pay for qualified medical expenses.

HSAs are also investment accounts that allow for tax-free growth. Once you turn 65, you can use the money for any purpose. However, you'll be taxed on nonqualified withdrawals.

Payment Plans and Financial Aid

Many health care providers offer payment plans that can help reduce medical bills. First, get in the habit of reviewing your invoices for common medical bill errors. If you spot one, you can dispute it and have it removed from your invoice.

If there are no mistakes, you can negotiate with your provider to see if they can extend the due date, offer a pay-in-full discount or allow you to enroll in a payment plan. If you aren't making headway, a medical billing advocate could be a good resource. They can work with your insurance company and provider to resolve outstanding issues and even negotiate a lower bill.

Another option is to see if you qualify for financial assistance from a government or nonprofit organization. That may include Medicaid or a patient assistance program.

Cash Savings

If you'd rather not pay accident insurance premiums, you could always use cash savings to cover injury-related costs as needed. One rule of thumb is to save three to six months' worth of basic living expenses in an emergency fund—that way you'll have access to a pool of cash if you need it. Hitting this target can take time, and that's okay. What matters most is getting in the habit of saving. Keeping your money in a high-yield savings account can allow you to earn interest along the way.

Learn more: How to Get Help With Medical Bills

Does Accident Insurance Go Up After You File a Claim?

Unlike car accident insurance claims, your premium on accident health insurance won't necessarily go up after filing this type of claim. Premiums are typically influenced by the policyholder's age, location, level of coverage and job—not previous claim history.

Also, it's good to know that if you suffer a covered injury and file a claim, that accident won't stay on your insurance the way it does after a car accident. That's because, again, rates aren't typically linked to your previous claims.

The Bottom Line

Accident insurance is relatively inexpensive and can provide financial peace of mind if you experience a covered injury. This type of supplemental insurance policy could lower your out-of-pocket medical costs, but it can be tricky to determine if it's something you need. Start by considering your lifestyle, financial situation and risk tolerance. If you do decide that accident insurance is right for you, it might be available as an employee benefit.