YOU ASK:

Accidental death and disablement insurance vs. life insurance: which is better?

WE ANSWER:

Many people think that Accidental Death and Disablement (AD&D) policies are life insurance products. They are not. They are actually casualty insurance policies. These policies pay out indemnity benefits when the insured becomes disabled or dies as a result of a non-work-related accident.

What is the difference between accidental death insurance and regular life insurance?

AD&D policies can be purchased as stand-alone policies or be made part of a regular life insurance contract. Under this policy there is a schedule for specific loses. For loss of a finger, limb or loss of sight, the policy has specific payout amounts.

In the case of life insurance policies, these pay out a death benefit when the insured individual meets death via a natural cause, a sickness or an accident. Life insurance policies are offered in a wide variety of choices. General types include term life, universal life and whole life.

Other differences between AD&D and life insurance include the following:

  • Medical requirements. AD&D policies normally do not have a set of medical questions as payouts are based on accidents that actually took place. Regular life insurance follows a set of underwriting guidelines, which require the individual to present proof of insurability.

  • Premiums. AD&D policies cost less because of their limited coverage.

  • Benefit payout. Payouts in AD&D policies are dependent on the extent of an injury. The schedule would go like this: the loss of a limb will result to a payout of 25 percent of the policy amount, the loss of sight in both eyes will mean a 100 percent payout, and so on. Regular life insurance would payout the full amount on the policy upon the death of the insured.

  • People insured. With AD&D policies, the policyholder can include his wife as well as his children as part of the coverage to save on premium payments. Life insurance, meanwhile, only offers coverage to the individual, as each person's situation is unique.

Do we need AD&D insurance if we have life insurance?

Most experts agree that under most situations, you would not need AD&D insurance if you already have life insurance.

Yet, you can still choose to buy normal life insurance but with an accidental death rider. This way in case of a “normal” death (that is not a result of an accident) your insurer will just payout 100% of the policy amount. However, if the death results from an accident they will pay a certain percentage more (typically 2 to 3 times the normal payout).

What does the statistics say?

The 2010 report of the National Center for Health Statistics shows that accidents are the number 5 cause of death, after heart disease, cancer, respiratory diseases and stroke.

Only 120,859 deaths were ruled accidental, which represents less than 5% of the total number of deaths for that year.

The choice is yours and you have to weigh the risks (depending on your personal lifestyle) and the odds to die of an accident.

Other types of insurance that can provide the same coverage as AD&D policies include health insurance and workers compensation. With health insurance, your medical and hospital expenses are covered in case of injuries suffered because of an accident. Workers compensation will cover treatment for loss of limb, back injuries, and other injuries while working on the job.

Should you buy accidental death and dismemberment insurance at all?

There are certain gaps in insurance coverage that AD&D policies can fill in. AD&D policies make payouts in addition to what you will get from other policies. For instance, you happen to lose a limb while at work. Your workers compensation will cover your treatment expenses while the AD&D insurance would provide you with a lump sum.

We cannot stress enough, however, that it is especially important to read the fine print and generally avoid relying solely on an AD&D policy. The AD&D policy or rider will have its own definitions of what constitutes death by an accident so not all accidental deaths will get a payout.

Furthermore, the death should occur within a certain period after the accident and be a direct result of it. For example, if you live in a coma for more than a month after an accident, your accidental death policy might not pay out the benefit.

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