• Mike Riska

How Accident Plans Pay Claims

Recently I wrote about how a supplemental Accident Plan that I own paid me when I fell on my face on vacation and sprained my ankle. It was a fun trip down memory lane, but I didn't get to dig too deeply into the mechanics of the accident claim, so I'd like to take some time to really get into how these plans work.


What Do Accident Plans Do?


First, a basic definition: Accident plans are insurance policies that pay a cash benefit directly to a policyholder when they, or a covered family member, are injured in an accident.


So, say you're me and not that graceful and walking in flipflops. For spraining your ankle you'd get a cash payment from an accident plan. Or you're riding your bike and you crash and break your arm. For the broken arm you'd get a bigger cash payment from an accident plan than for the sprained ankle. Or you're in a car crash with your family and two of you have to be taken to the hospital by ambulance and stay there for a few days. You'd get a much bigger payment from an accident plan for that.


Why Are Accident Plans Important?


Accident plans are important for two big reasons: both of them related to the kinds of out-of-pocket exposure you're likely to have when injured.


The first kind of out-of-pocket exposure is related to your medical costs. Most of us have a higher deductible on our health insurance than we did in the past. Many of us have accepted this higher deductible because we really can't afford the cost of a lower deductible plan any more. But the tradeoff is that if anything goes wrong, we now have to be able to afford to meet the deductible and any other expenses that aren't covered by the health plan.


For most people, this is a big problem. As many polls will tell you, Americans in general don't have a lot of spare cash on hand for emergencies. Over half the country would struggle to come up with an extra $1000. So the first important thing an accident plan can do is help with the out-of-pocket costs associated with a health insurance plan.


Focus on Recovery, Not Finances


The other kind of out-of-pocket costs you have during an accident situation don't get talked about as much, because they're always there: you still have to pay your normal bills. On top of that, if a wage earner has to take time off to care for an injured family member, they could lose pay for the missed time.


So the purpose of the money coming in from a claim on an accident plan is to give an individual or family a financial cushion. Since it's a cash payment, they're free to use the money however they need to. It can go toward medical bills, but it can also go toward regular household bills and can help offset lost income. The more serious the accident, the more money comes in.


Show Me the Money


So what determines how much is paid to a policyholder for an accident claim? The exact features and benefit amounts depend on which carrier you purchase the plan from, but the overall structure is pretty similar between plans. These are indemnity policies, so fixed payments are made from a list of plan features based on the type of injuries you have and the types of service you receive. All of the individual plan benefits that apply to your specific accident are added up and that's the amount of your claim check.


Most plans have a long list of features and there can be extensive subcategories. For example, if your accident plan has a benefit that pays an amount for the specific injury that you have, there will be a long list of injuries with the corresponding dollar amount paid for each. That part of the claim check for your broken arm will depend on which arm bone you broke, the medically-defined severity of the break and other factors.


Other features are more generic. Most plans pay a benefit as soon as you seek treatment for an injury, a standard flat amount whether that first treatment is at your family doctor or in an ICU. There may be fixed payments for additional treatments, like follow up visits to a doctor or physical therapist. There may be a fixed payment for each day you spend in a hospital.


In general the more serious your injuries, the more plan features will come into play and the bigger the claim check will be. Let me leave you with a couple of claim examples to illustrate the difference in payout between a minor claim and a more serious one.


Claim #1: My Poor Wittle Spwained Ankle


I've spent two articles now trying to drum up sympathy for my sprained ankle, which is thankfully the most serious injury I've ever had. Here's how the accident claim paid:


Initial Treatment Benefit $120

Follow up visits (x3 @ $25 each) $75

Physical therapy visits (x10 @ $25 each) $250

Medical Equipment (crutches & boot) $75

Specific Injury Benefit $110


Total Claim Check $630


In this case I actually had more than 10 physical therapy visits, but the policy pays for a maximum of 10 per claim. The specific injury benefit is not that big because, well, a sprained ankle isn't that serious.


Claim #2: Family in a Car Crash


Here's a more serious example, a family of four that had a car accident, with two family members hospitalized. When multiple covered people are involved, most benefits on an accident plan are paid per covered person.


Ambulance $150

Blood/plasma (@$100 per person) $200

Initial hospitalization (@$1000 per person) $2000

ICU (1 person @$400/day x2 days) $800

Hospital confinement ($200/day/person) $3600

Fractures/lacerations $6700

X-rays/Imaging ($150/person x2) $300

Medical equipment $500

Family transportation & lodging $2100

Home modification (wheelchair ramp) $2000

Physical therapy $1000


Total Claim Check $19,350


In this case the family received a large amount of much needed money, for a situation that involved not just significant medical bills, but time off work for the uninjured adult to care for their hurt spouse and child. The money helped pay medical and household bills, and also helped make up some of that lost income during recovery.


Final Thoughts


This is one I have personal experience with, both as a claimant and as someone who has seen many, many clients make claims. Accident plans are inexpensive and cover a wide variety of situations, from minor to serious. When the situation isn't that serious, the extra money is nice to have. When it's serious, that extra money can make a huge difference in someone's life. No one needs to add financial stress on top of a bad injury. Accident plans can help.

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