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Life Insurance

Accidental Death And Dismemberment Insurance: What You Need to Know

Accidental death and dismemberment (AD&D) insurance offers payouts to your family if you die or suffer catastrophic injuries due to an accident.

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What Is Accidental Death and Dismemberment (AD&D) Insurance?

Accidental death and dismemberment (AD&D) insurance offers a payout to your beneficiaries if you die due to an accident. It also pays you if you lose a limb or suffer another qualifying injury caused by an accident.

AD&D is the combination of an accidental life insurance policy and an accidental disability policy. Coverage pays out in the event of specific, qualifying incidents such as losing a limb, the function of a limb, or key function such as your sight or hearing or passing away due to a covered accident. AD&D is often a rider added to another insurance policy because of its narrow scope of coverage and limitations, but it can also be standalone. If you don’t feel you need traditional life insurance, an AD&D policy might be a good choice.

How Does AD&D Insurance Work?

According to the CDC, accidents are now the fourth leading cause of death making AD&D coverage something that everyone should consider.

Many U.S. companies offer AD&D as part of benefits packages, which means that signing up can happen when you’re hired or during your annual enrollment period. If that’s not an option for you, there are multiple insurance companies that offer AD&D policies.

The cost of AD&D is tied to the amount of coverage you purchase; the higher your payout, the more your monthly premium will be. That said, this type of insurance is traditionally less expensive than standard life insurance because of the limited coverage.

AD&D can be very appealing to people who can’t get traditional life insurance due to their age or health conditions, people who work in a dangerous occupation, or people who like the idea that if they’re seriously injured, they will receive some compensation.

If you die in an accident, the payout will go to your beneficiaries. If you suffer a qualifying injury such as the loss of a limb, paralysis, or loss of function in your eyes or ears, then you will receive a payout as compensation. Payouts for dismemberments tend to be incremental and based on the loss. For instance, loss of vision in one eye may result in half of the benefits rather than full payment for complete vision loss.

What Does AD&D Insurance Cover?

AD&D insurance is not a guaranteed life insurance policy; it is specifically tied to certain types of accidents. Each policy has its own definition of what qualifies as an accident and which injuries and causes of death are accepted but, in general, the qualifying event needs to be an accident such as a plane crash, a sudden fall, a car accident, etc. While many accidents are covered in AD&D insurance, most policies do not pay for the following:

  • Death caused by illness
  • Suicide or self-inflicted injuries
  • Drug overdose
  • Death or injury while driving under the influence
  • Death or injury while committing a crime
  • Death or injury while participating in a riot or war
  • Death or injury from pre-specified “dangerous” occupations or hobbies (i.e. scuba diving, sky diving, car racing, playing professional sports, flying airplanes, etc.)

How Does It Differ from Traditional Life Insurance?

While AD&D does have a life insurance element, it’s not the same as traditional life insurance. The accident portion of AD&D is the biggest differentiator because it’s required for an AD&D to make payments. Whereas a death from almost any cause will be covered in a traditional life insurance policy.

One thing that can make an AD&D policy attractive is that there may be guaranteed approval if you are within the predetermined age parameters. This means that people who can’t get a traditional life insurance policy can at least get an AD&D policy, and they have the peace of mind that comes with knowing that if there’s an accident their beneficiaries are protected.

Additionally, traditional life insurance does not have a dismemberment clause, but you can add a disability or even an AD&D rider to many life insurance policies if this is something you’re concerned about. These two policy types work well together in many situations by offering a broader range of coverage and protection, not just for beneficiaries but for the policyholder as well.

Advantages of AD&D Insurance

The following are some of the advantages of AD&D insurance that make it attractive as a standalone or as an add-on to traditional life insurance.

  • Usually, no medical exam is required to get an AD&D policy, which is great if you have pre-existing health conditions and can’t get traditional life insurance.
  • Guaranteed coverage may be available as long as you fall within the pre-specified age parameters, for some companies that’s 18 to 70 years old, other companies will cover from 18 to 80 years old.
  • Quick coverage is possible if there’s no medical exam, no lengthy questionnaires, and no waiting period.

Additional Death Benefit for Beneficiaries

In addition to those benefits, adding an AD&D policy to an existing life insurance policy can increase the payout to your beneficiaries. This is something you might want for peace of mind.

Less Expensive Than Traditional Life Insurance

While adding AD&D to a traditional policy can be appealing, you might want to skip the life insurance and go right to AD&D because it’s less expensive. These policies are less expensive because they’re less likely to pay out.

While accidents are possible and certainly a concern, more people die of illness each year than accidents. Traditional life insurance pays even if the policyholder dies from illness or natural causes, so there’s a much higher chance of a payout.

Disadvantages of AD&D Insurance

AD&D doesn’t offer complete protection and has some disadvantages, especially as a standalone policy.

  • Coverage is limited to accidents and, even then, there are some that are excluded
  • Coverage might be tied to your employer, meaning that you lose it when you leave your job
  • AD&D won’t cover some “high-risk” jobs or hobbies

Covers Limited Events

Arguably the biggest disadvantage of an AD&D policy is how limited it is. If your job is dangerous or you’re on the road a lot, you might find it more practical because the odds of an accident are higher. If this isn’t the case, the chances of using this policy are lower than a traditional life or disability policy. If you don’t use the policy, all of the money you pay towards it is lost.

Should Only Supplement Traditional Life and Disability Policy

A good approach to an AD&D policy, if you feel you need one, is to pair it with a traditional life and disability insurance policy. This way you will get the peace of mind that the dismemberment clause brings while knowing your beneficiaries will get the added payout should you die in an accident or become disabled. If you qualify for a traditional life or disability insurance policy, it’s a good idea to ask how much your premiums will increase with the addition of an AD&D policy.

Who Should Consider AD&D Insurance?

The ideal candidates for AD&D insurance are young people who are more at risk of being in an accident, older people or people with underlying health conditions who don’t qualify for traditional life insurance, and people who have risky jobs.

If you fall into any of the above groups, AD&D might be a good path for you as it gives you an affordable life insurance option when others might not be available and when you have a risk of an accident. These are two great reasons to purchase this type of policy. An even better reason is if your employer offers it as a free workplace benefit. In this case, there’s no harm in signing up.