Is accidental death insurance worth it ?

Accidents can happen in the blink of an eye but the implications can last a lifetime. When deciding whether to get accidental death & dismemberment insurance or not there are some things you first need to understand and consider.

There is no simple universal answer to the question “Is AD&D insurance worth it ?” as it completely depends on your personal situation or needs. You need to carefully evaluate the pros and cons to decide if having AD&D insurance adds value and is worth having.

Pros of having AD&D insurance

  • The cost
  • AD&D insurance is dirt-cheap as it has low premiums, and some companies even offer it for free to their clients. Typical premiums range from $1 to $5 per month.

  • No medical exam required
  • Due to the nature of Accidental death & dismemberment insurance, no medical exam is required, no medical questions need to be answered.

  • Insured in case of dismemberment
  • If you are professionally dependent on the use of your physical abilities like speech, limbs or extremities AD&D coverage can financially ease the stress of an eventual income loss for you and your family. A specified portion of the death benefit (the so-called “scheduled benefit”) will be paid out in case of partial dismemberment (loss of speech, hearing, paralysis of the extremities, loss of movement, …). In case of complete loss of your physical capabilities the entire face value of the death insurance insurance can be paid out.

  • Double indemnity benefits
  • If you already have a term life insurance AD&D this insurance policy can be added on top as a low-cost addition/endorsement/rider and pays out twice the face value of the death benefit to your beneficiaries. This is called “double indemnity”.

Cons of getting AD&D insurance

  • Likelihood of pay-out
  • Accidental death insurance coverage extends only to the unforeseen circumstances unrelated to the body. The reason AD&D is so inexpensive is that the chances of dying in an accident are statistically very small, so a pay-out is unlikely. There are also a lot of conditions that negate benefits. AD&D does not cover death caused by illness or a (pre-existing) medical condition, illegal or criminal activities, suicide, death during surgery, … Death insurance only covers death directly resulting from the injuries of an accident, and this only when death occurs within a set time-frame (a certain number of days) after the accident.

  • Coverage waiting period
  • Some death insurance policies have a waiting period before the coverage starts, like e.g. a time period of 24 months.

  • No replacement for term life insurance
  • Maybe you already have enough coverage through your “regular” life insurance policy. Remember, term life insurance is a more complete insurance package through which you are covered in case of all kinds of deaths, not only accidental deaths. All-in-all, the cost of term life is remarkably higher but its coverage is far more complete. Nonetheless, it can absolutely be considered as an endorsement to a standard term life, as it doubles the face value of the death benefits paid out to your beneficiaries.

As stated before, the decision whether having accidental death and dismemberment insurance is worth it depends entirely on your own personal considerations and situation. AD&D’s very low-cost premiums can be a valid reason to get this kind of coverage, but keep in mind the chances of an accident happening are marginally small.

If you really desire peace of mind you probably should opt for a term life insurance with double indemnity (a death insurance policy on top that pays out a multiple of the face value of the death benefits).

The difference between life insurance and AD&D

Although an accidental death and dismemberment policy can be seen as a limited form of life insurance policy, there are in fact huge differences between these two kinds of insurance policies.

Life insurance policy

In exchange for a monthly premium your listed beneficiaries receive a lump sum in event of death, regardless of the cause of death. This benefit amount can help your loved ones covering the burial costs, paying estate taxes, paying for the raise and education of your children, replacing loss of future income and helping them maintain their current lifestyle.

There are actually two types of life insurance: term life and permanent life policies. A term life insurance policy that is usually issued for 10 to 30 years, during which the premium payments and the benefit amount remains the same. After the term life expires the policy has to be renewed or a new one has to be purchased at higher life insurance rates, as the chances of dying have increased. A permanent life policy on the other hand does not expire.

A medical examination is required to be eligible for life insurance, and after an underwriting period (usually 48 hours to a couple of weeks) your coverage begins. The initial (usually) 3-year period of a life insurance policy is called the contestability period, as during this period suicide and misrepresentation of the information provided (e.g. smoking or heavy drinking when you stated on your application form you don’t smoke or drink) can void the payment of the benefits in case of death.

Accidental death and dismemberment insurance policy (AD&D)
An AD&D insurance policy only pays out in the very restricted and specific circumstances in which the policy holder is killed or injured in an accident. The lump sum of the policy will be paid out in case of an accidental death, partial benefits will be paid out in case of loss of one or more limbs. Death by illness or natural death are, as opposed to coverage in life insurance, not covered in a death insurance policy. The chances of dying because of an accident are very slim – according to the CDC(Center for Disease Control and Prevention) 0,5% of all deaths can be considered “accidental deaths”. Also death must be proven to be directly caused by an accident (within a set period of time, usually a few months).

Nearly everyone can qualify for accidental death insurance, no medical examination or proof of good health is necessary, and because of the unlikely event of accidental death the premiums are very inexpensive. An AD&D insurance policy has no cash value, and can be added or dropped at any time.

When choose accidental death and dismemberment insurance ?
AD&D insurance can not be seen as a replacement or alternative for life insurance. However it can be added as a rider to a traditional life insurance plan so the beneficiaries receive both the benefits from the life insurance and the death and dismemberment insurance plan in case of an accidental death. Also in case of an uninsurable condition, when someone is not qualified for regular life insurance or any other forms of insurance it can be chosen to offer some (although quite limited) degree of protection.

Accidental death insurance coverage and exclusions

Coverage :
AD&D insurance pays only pays benefits in case of death or dismemberment as the proven and direct result of an (unintentional) accident, and it must happen within a certain timeframe (usually a couple of months). Accidents due to natural causes (illness, heart attack, …) or intentional causes (suicide) are therefore not covered.

When a covered accident results in death, normally the face value of the AD&D policy will be paid out. Dismemberment due to a covered accident pays out fractionally the policy face value. The loss of one member (like a hand, foot, hearing, eyesight, speech) could e.g. result in a payout of 50% of the benefits, the loss of more than one member would result in the payment of the full benefits. Partial or complete paralysis because of an unintentional accident normally pays out 25% to 50% of the benefits. Continue reading

The cost of accidental death insurance

The premium costs for AD&D policies are very cheap when compared to a “regular” life policy. The rates vary by company and depending on which kind of coverage and benefits you want, but you can already get a death insurance policy for as low as $60 per year. Often it is offered in the form of a rider as an inexpensive supplement to a life insurance policy to get fuller coverage or double indemnity. Continue reading