New Delhi, July 30 -- A young colleague in her 20s recently told me she had figured out insurance.

Term insurance, she felt, was a waste for someone her age. A personal accident cover of Rs.1 crore cost her about Rs.3,500 a year. A term plan for the same amount would cost Rs.30,000 or more.

Her logic was simple: young people mostly die in accidents, so why pay nearly ten times more for cover against a risk that barely applies to her?

She was persuasive. But wrong.

The two products address different risks.

Term insurance pays a lump sum to your family if you die-from any cause-during the policy term. Personal accident insurance pays only if death or disability results from an accident. Term insurance is a broad promise against mortali...