Understanding Accidental Death & Dismemberment (AD&D) Insurance

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

Accidental death and dismemberment (AD&D) insurance is insurance—usually added as a rider to a health or life insurance policy—that covers the unintentional death or dismemberment of the insured due to an unforeseen accident. Dismemberment includes the loss, or the loss of use, of body parts or functions (such as limbs, speech, eyesight, and hearing).

Because of coverage limitations, prospective buyers should carefully read the terms of the policy. For instance, AD&D insurance is limited and generally covers unlikely events. Events not covered include, but are not limited to are suicide or death from illness or natural causes. Also, it is supplemental life insurance and is not an acceptable substitute for a full life insurance policy. However, the cost is typically low, particularly if offered by an employer.

Understanding AD&D Insurance: Coverage and Limitation

AD&D insurance contains a schedule that details the terms and percentages of the various benefits and covered special circumstances. If an insured person dies from accident injuries, the death must occur within a set time to get benefits.

Coverage for Accidental Death in AD&D Plans

When adding an AD&D rider, also known as a “double indemnity” rider, to a life insurance policy, the designated beneficiaries receive benefits from both the rider and the underlying policy if the insured dies accidentally.

Benefits usually have a maximum limit outlined in the rider. As most AD&D insurance payments mirror the face value of the original life insurance policy, the beneficiary normally receives a benefit twice the amount of the life insurance policy’s face value upon the accidental death of the insured.

Typically, accidental death covers exceptional circumstances, such as exposure to the elements, traffic accidents, homicide, falls, drowning, and accidents involving heavy equipment.

Coverage for Dismemberment: What AD&D Plans Include

Most AD&D policies pay a percentage for the loss of a limb, partial or permanent paralysis, or the loss of use of specific body parts, such as the loss of sight, hearing, or speech. The types and extent of injuries covered are particular to and defined by each insurer and policy. 

Exploring Voluntary AD&D Insurance

Voluntary accidental death and dismemberment (VAD&D) insurance is an optional financial protection plan that provides a beneficiary with cash if the policyholder is accidentally killed or loses certain body parts. VAD&D is also a limited form of life insurance and is generally less expensive than a full life insurance policy.

Premiums are based on the amount of insurance purchased. VAD&D insurance is typically purchased by workers in occupations that place them at high risk of physical injury. Most policies are renewed periodically with revised terms.

How much such a policy pays depends not only on the amount of coverage purchased but also on the type of claim filed. For example, the policy might pay 100% if the policyholder is killed or becomes quadriplegic, but only 50% for the loss of a hand or the permanent loss of hearing in one ear or sight in one eye.

Exclusions in AD&D Insurance: What's Not Covered

Each insurance provider includes a list of exclusions. In most instances, the list includes suicide, death from illness or natural causes, and wartime injuries.

Other common exclusions include death resulting from the overdose of toxic substances, death while under the influence of nonprescription drugs, suicide, certain recreational activities, and the injury or death of a professional athlete during a sporting event.

Usually, if the insured’s loss occurs because of a felonious act on his or her part, no benefit is payable. People working in high-risk jobs (such as public safety and the military) may not qualify for AD&D coverage.

Pros and Cons of AD&D Coverage

Advantages

Financial assistance: An accidental death impacts the surviving loved ones emotionally as well as financially, as they must now deal with a sudden loss of income. The death benefit from an AD&D policy can add peace of mind by lessening that burden.

Supplements lost income: Because the loss of income will carry forward, AD&D policies provide funds in addition to the death benefit offered through the traditional life insurance on the insured. The death benefit amount is usually equal to or some multiple of the traditional policy's death benefit amount. This extra benefit, called double indemnity, often doubles the death benefit.

Lower premiums: Since coverage is limited to certain accidental events, premiums are usually low. When offered by an employer, it might cost employees just a few dollars a month. Even if bought individually, AD&D costs are much lower than term insurance for the same coverage.

No medical exam: Most insurers don't require a medical exam for AD&D coverage, especially for group plans from employers.

Disadvantages

Only pays for certain incidents: This limited coverage can be disadvantageous to policyholders because it only pays for certain events. If death occurs outside of these limitations, the AD&D policy does not pay. Premiums paid are forfeited and remain with the insurer. 

For example, if someone dies as a result of a terrorist attack, no benefit is paid because that is considered a wartime act. Insurers have the ability to make exceptions to this, as was done for victims of the 9/11 terrorist attacks in the United States.

Low likelihood of payout: Heart-related issues are the leading cause of death in the U.S., with accidents ranking third. Therefore, it is more likely that someone will die from natural causes than from an accident, especially older adults and those not engaged in risky work.

Group coverage lost when you change jobs: Group or employer-sponsored plans might not be portable if you leave the group or employer. Often, coverage ends upon the termination of the insured's affiliation with the sponsor, leaving them unprotected until new coverage is issued.

False sense of security: Including AD&D in total life insurance can give a false sense of security during planning. Because AD&D only pays upon certain events, it should not be used to determine whether your life insurance portfolio is sufficient. Traditional life insurance should be adequate to provide the necessary financial support to the beneficiaries. AD&D supplements that payout in the unlikely event that death occurs from an accident. Still, it adds an extra benefit with the sudden and unexpected departure of the insured.

The Bottom Line

Accidental death and dismemberment (AD&D) is a supplemental insurance policy that pays a benefit upon the accidental death of an insured or upon the loss of a limb due to an accident. Often added as a rider, AD&D is designed to supplement regular life insurance, as coverage is limited to certain types of accidents and deaths not caused by natural causes like illness or heart attacks. Common exclusions include suicide or deaths from natural causes; however, if a heart attack is triggered by accidents, then it may be covered under the policy. 

For those working in high-risk occupations, a voluntary AD&D can help cover financially devastating accidents. Still, AD&D can serve as an affordable insurance option with lower premiums, offering financial support to beneficiaries without the need for a medical exam. You should always carefully review policy details and understand what's covered and what's excluded to ensure the policy meets your insurance needs.