Accidental Death and Dismemberment (AD&D) Insurance

Accidental death and dismemberment (AD&D) insurance is insurance that covers the insured's unintentional death or dismemberment. It is typically added as a rider to a health insurance or life insurance policy. Dismemberment refers to the loss or loss of use of body parts or functions (e.g., limbs, speech, eyesight, and hearing).

Prospective buyers should carefully read the policy terms due to coverage limitations. AD&D insurance, for example, is limited and generally covers unlikely events. Furthermore, it is supplemental life insurance and not a suitable replacement for term life insurance.

Understanding Accidental Death and Dismemberment (AD&D) Insurance

The terms and percentages of the various benefits and covered special circumstances are detailed in an AD&D insurance schedule. For example, if an insured dies as a result of injuries sustained in an accident, benefits must be paid within a certain time frame.

Accidental Death

When an AD&D rider, also known as a "double indemnity" rider, is added to a life insurance policy, the designated beneficiaries receive benefits from both if the insured dies in an accident. Benefits are usually limited to a certain amount. Most insurers limit the amount payable in these situations. Because most AD&D insurance payments typically mirror the face value of the original life insurance policy, the beneficiary receives twice the face value of the life insurance policy upon the insured's accidental death.

Accidental death typically refers to exceptional circumstances such as exposure to the elements, traffic accidents, homicide, falls, drowning, and heavy equipment accidents.

Dismemberment

Most AD&D policies pay a percentage for amputation, partial or permanent paralysis, or loss of use of specific body parts such as sight, hearing, or speech. The types and extent of injuries covered are unique to each insurer and policy. It is unusual for a policy to pay 100% of the policy amount for anything less than the loss of a limb combined with the loss of a major bodily function, such as sight in at least one eye or hearing in at least one ear.

Voluntary AD&D

Voluntary accidental death and dismemberment (VAD&D) insurance is a financial protection plan that pays out cash to a beneficiary if the policyholder is killed in an accident or loses certain body parts. VAD&D is a type of limited life insurance that is less expensive than a full life insurance policy.

The amount of insurance purchased determines the premium, and VAD&D insurance is typically purchased by workers in occupations that place them at high risk of physical injury. Most policies are renewed on a regular basis with revised terms.

The amount paid by such a policy is determined not only by the amount of coverage purchased, but also by the type of claim filed. For example, the policy may pay out 100% if the policyholder is killed or becomes quadriplegic, but only 50% if the policyholder loses a hand or suffers permanent loss of hearing or sight in one ear or eye.

Special Considerations

Each insurance company has a list of exclusions. Suicide, death from illness or natural causes, and wartime injuries are usually on the list. Other common exclusions include death as a result of a toxic substance overdose, death while under the influence of nonprescription drugs, and injury or death of a professional athlete while participating in a sporting event. Generally, no benefit is payable if the insured's loss is caused by a felonious act on his or her part.

Advantages and Disadvantages of AD&D Insurance

Advantages

An unintentional death affects the surviving loved ones not only emotionally, but also financially, as they now face a sudden loss of income. An AD&D policy's death benefit can provide peace of mind by easing that burden.

Because the insured's loss of income will continue, AD&D policies provide a death benefit in addition to the death benefit provided by traditional life insurance. The death benefit amount is usually equal to or a multiple of the death benefit amount of the traditional policy. This added feature is known as double indemnity because the benefit usually doubles with it.

Premiums are low because coverage is limited to specific events that result in accidental death or limb loss. If provided by an employer, participating employees may incur a monthly cost of a few dollars. Even when purchased separately, the costs are significantly lower than rates for term insurance with the same face amount.

Disadvantages

This limited coverage can also be detrimental to policyholders because it only pays out in certain circumstances. The AD&D policy does not pay if death occurs outside of these parameters. Paid premiums are forfeited and retained by the insurer. For example, if a person dies as a result of a terrorist attack, no benefits are paid because the act is considered a wartime act. Insurers can make exceptions to this rule, as they did for victims of the 9/11 terrorist attacks in the United States.

Heart disease is the leading cause of death in the United States. As a result, it is more likely that someone will die from natural causes than from an accident, especially for those who are not engaged in hazardous work and older adults.

If coverage is provided by a group or an employer, it may not be portable if the insured leaves the group or employer. Often, coverage ends when the insured's affiliation with the sponsor ends, leaving them unprotected until new coverage is issued. Furthermore, having AD&D may give policyholders a false sense of security when calculating their cumulative life insurance totals during planning.

Because AD&D only pays out in certain circumstances, it should not be used to determine the balance of a customer's life insurance portfolio. Traditional life insurance should be sufficient to provide the beneficiaries with the necessary financial support. In the event of an accident-related death, AD&D supplements are available. It adds an extra benefit for the insured's sudden and unexpected departure.

The Bottom Line

Accidental death and dismemberment (AD&D) insurance is a type of insurance policy that pays a death benefit if an insured dies in an accident or loses a limb in an accident. AD&D is intended to supplement regular life insurance because coverage is limited to specific types of accidents. If the death is caused by natural causes or other excludable events, no benefit is payable. AD&D, on the other hand, can be a cost-effective way to supplement insurance and provide additional financial assistance to the deceased's families.