Accident Versus Life Option

If you think your life insurance needs are covered with an accidental death and dismemberment policy, you’re wrong. Life life insurance and accidental death and dismemberment, or AD&D, are two very different types of policies. Knowing the difference is crucial to buying the right coverage for your needs.

Life Insurance
Life insurance is basic coverage that pays out if you die regardless of the cause of death. You choose the amount of coverage and the policy term ahead of time, and your payments and benefit amount are guaranteed to stay the same. Term lengths typically range from 10 to 30 years. If you die after the term ends, there’s no payout because the policy has expired.

Accidental Death and Dismemberment
AD&D insurance can be purchased as a standalone product or as a rider on a life insurance policy. Unlike life insurance, AD&D policies pay out only if you are killed or injured in an accident. For example, if you die from a heart attack or cancer, there’s no payout. To qualify for a payout for injury, you must lose a body part or the ability to hear, see or speak. If you die in an accident covered by AD&D, your beneficiaries receive the full payout. If you suffer an injury, the policy generally pays out only part of the benefit.

Limitations of AD&D
While AD&D insurance may seem like a good idea, ask yourself if it’s really worth the money.
First, your chances of dying in an accident are relatively slim. According to the Centers for Disease Control and Prevention (USA), just 130,557 of the 2.5 million deaths reported in 2013 were accidental. A lot more people died of cancer, heart disease and other natural causes that would be covered by life insurance.

And if you die because of an accident but not right away, your beneficiaries might not see any benefits. To collect on an AD&D policy, it must be proved that a death or injury was directly caused by a qualifying accident or within a certain time frame after it occurred, usually three months.

AD&D policies often exclude deaths due to high-risk activities such as skydiving or car racing. And deaths caused by a drug overdose, drunken driving (by the insured person), war, complications from surgery, mental illness, suicide or certain other circumstances likely won’t be covered.

Which Is Right For You?
Although AD&D has significant shortcomings, there are times when it makes sense. If it’s free additional insurance coverage through your employer, it doesn’t hurt to take advantage of AD&D.
Overall, life insurance is a better option simply because it provides more coverage and, often, the chance for a higher payout for your loved ones. Although you’ll pay higher premiums for life insurance, it’s worth knowing that your family will be provided for should the unexpected happen — no matter the cause of death.