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.