What is Accidental Death and Dismemberment Insurance?

?Accidental death and dismemberment (AD&D) insurance protects a person and their loved ones from financial hardship if an accident causes death or a serious injury. While not as comprehensive as life insurance, AD&D coverage is an appealing option for those with life-threatening medical conditions or dangerous jobs.

Accidents are the fourth-leading cause of death in the U.S, according to the U.S. Centers for Disease Control and Prevention (CDC). Accidental death and dismemberment (AD&D) insurance provides compensation for death and serious injury due to accidents.?

Let’s delve into the features of AD&D insurance to see how it compares to traditional life insurance.

What is AD&D Insurance?

AD&D insurance pays a sum of money called a benefit when the insured dies due to an accident or suffers a serious injury. In exchange for this protection, the insured pays a premium. Depending on the terms of the policy, premium payments may be due monthly, quarterly, annually or according to another schedule.

What Does AD&D Insurance Cover?

Insurers establish their coverage rules for policies. As a result, those shopping for AD&D insurance should read the coverage terms carefully. Generally, AD&D insurance may cover deaths due to:

• Accidental discharge of firearms.
• Auto collisions.
• Falls.
• Fire.
• Workplace accidents.

In addition, policies pay out all or a portion of the benefit if the insured suffers dismemberment due to a covered accident. Some policies extend coverage to the loss of a major function, such as the ability to see, hear or walk.

Most AD&D policies won’t cover death and serious injury caused by:

• Committing a crime.
• Intoxication, such as a drunk-driving car accident or using illicit drugs on the job.
• Drug overdose.
• Hazardous recreational activities, such as skydiving.
• Natural causes.
• Suicide.
• War.

What Are the Main Types of AD&D Insurance?

The main types of AD&D insurance are:

• Employer-provided: Employers may elect to offer AD&D insurance to employees as part of total compensation. The company pays for the policy, and all employees who meet eligibility guidelines receive coverage. Some companies allow employees to purchase additional coverage for their spouses and children.
• Voluntary: Employees must opt-in to voluntary AD&D coverage. Employers may pay for some of the cost or require employees to pay 100% of premiums. Normally, the employer deducts premium payments directly from wages.
• Individual: Anyone can apply for individual or stand-alone AD&D insurance through a licensed agent or directly from an insurance company.
• Rider: Some insurance companies offer AD&D riders on life insurance. The rider increases the size of the standard death benefit if the insured dies due to an accident. It also allows the insured to access some of the death benefits if they suffer a qualified injury due to an accident.

Difference Between AD&D and Life Insurance

The main differences between AD&D and life insurance are:

• Coverage: Life insurance covers death due to natural causes, plus some accidents. AD&D insurance may cover some types of accidents that life insurance won’t, such as on-the-job accidents.
• Qualifications: Life insurance usually has stricter underwriting guidelines than AD&D insurance. Insurers may deny life insurance coverage for people with chronic medical conditions or dangerous jobs. These people may still qualify for AD&D coverage.
• Benefit size: Caps on death benefits are generally set higher for life insurance than for AD&D.
• Investment vehicle: Some types of life insurance build up a cash value over time. The insured can borrow against this money or access it to cover major expenses. AD&D insurance doesn't build a cash value.

What Are the Advantages of AD&D?

The advantages of AD&D include:

• Cost: Generally, AD&D insurance costs less than life insurance.
• Disability coverage: AD&D insurance can reduce financial hardship following a serious injury.
• Looser underwriting standards: The qualification requirements for AD&D coverage are much less strict than for life insurance. As a result, it may be the only type of protection available for those at a high risk of death due to medical conditions or occupational hazards.
• Speed: The simplified underwriting process and lack of medical exam requirements allow a person to quickly obtain AD&D coverage.

What Are the Disadvantages of AD&D?

Some possible disadvantages of AD&D include:

• Less risk of accidents: Heart attacks, cancer and COVID-19 are the most common causes of death in the U.S. Most people are more likely to die from one of these natural causes than an accident.
• Feature of employment: Someone who receives AD&D through an employer may lose coverage if they quit or lose their jobs.
• Limited benefit: Those who want to leave a large sum to their beneficiaries may not be able to purchase enough AD&D insurance to fit their needs.
• Limits on payouts for disabilities: The insurer may not pay the full benefit for all dismemberment and loss-of-function claims. In some cases, the insured may need to lose more than one limb or function or lose a limb and a major function to receive the full benefit.

Who Needs AD&D?

The following people are most likely to benefit from AD&D insurance:

• Borrowers with new loans: Some lenders offer optional AD&D coverage to mortgage, home equity loan and personal loan borrowers. These policies can ensure money is available to pay off the debt if an accident occurs.
• People without savings: As Hansi Mehrotra of Money Management India says, “One-third of all American families are either already bankrupt or just one ‘accident’ away from it.” For these individuals, AD&D insurance can reduce the risk of a serious accident leading to financial strain.
• Individuals without life insurance: A portion of the 106 million adults in the U.S. without life insurance lack coverage because they don’t qualify due to health issues or occupation. A stand-alone AD&D policy may be an option for these individuals.
• Those who work in high-risk professions: AD&D insurance can provide extra peace of mind for those who work dangerous jobs, such as logging workers, roofers and construction helpers.

How to Apply for AD&D Insurance

Normally, AD&D insurance provided as an employee benefit has a simple application process. The employee answers basic questions on a form. In most cases, coverage is automatic with no approval necessary.

Those looking for an individual AD&D insurance policy can follow these steps:

1. Research stand-alone policies, comparing general features.
2. Request quotes for two or more policies online, by phone or through an agent.
3. Compare quotes, considering both the terms of the policy and the cost.
4. Choose the right coverage.
5. Complete and submit application.

Top Takeaways

• AD&D insurance usually pays a benefit if a death or serious injury occurs due to a car crash, firearms accident, fire, workplace accident or fall.
• The main types of AD&D insurance are employer-provided, voluntary, individual and life insurance riders.
• People who take out new loans, lack savings or life insurance or work in high-risk professions are most likely to benefit from AD&D insurance.

(Reporting by NPD)