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AD&D insurance sounds like a good idea — but is it worth it?

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5 mins

Accidental deaths and injuries caused by serious accidents are often the most unforeseen and therefore, the most disruptive to a family.

That’s the idea behind accidental death and dismemberment (AD&D) insurance. This type of policy can offer a benefit to help you and your loved ones cope financially with a sudden death or serious injury.

What is AD&D insurance?

Accidental death and dismemberment insurance provides coverage if an insured is the victim of an accident that causes death, dismemberment or serious disability.

The policy’s death benefit is paid if death is caused by an accident, such as a car crash, fall, or murder.

It also offers a benefit for a serious injury caused by an accident that results in the loss of a limb or finger, the loss of eyesight, hearing or speech, or paralysis.

There are a number of exclusions on a typical AD&D policy. They typically don’t cover deaths or injuries caused by:

  • Suicide attempts
  • Daredevil activities such as skydiving or auto racing
  • War
  • Drug overdoses
  • Surgical procedures

How does AD&D insurance work?

There are a number of ways to add AD&D coverage. Many employers and professional associations offer group AD&D coverage, and there are standalone individual policies available as well.

Accidental death and dismemberment benefits are often available as riders on both life insurance and disability insurance policies. In both cases, the policy pays an additional benefit if you die or suffer a severe injury due to an accident. A life policy with an AD&D rider typically pays double the policy’s standard death benefit in the event that death is caused by accident. This is sometimes referred to as “double indemnity.”

If you are dismembered or seriously injured due to an accident, an AD&D policy’s benefit is based on the severity of your injuries, or how many “limbs” you lose.

For example, the loss of one hand may result in you collecting 50 percent of the policy’s benefits. If both of your legs are amputated, you would likely receive 100 percent of the contract benefits. Paralysis may result in partial benefits depending on the extent of the paralysis.

AD&D vs. life insurance

Accidental death and dismemberment insurance can supplement a life insurance policy, particularly if it's term coverage. In the event you died in an accident, your beneficiaries would collect on both the term policy and the AD&D policy.

However, you should never consider accidental death and dismemberment insurance as a replacement for a traditional life policy. This underscores the key difference between life insurance and AD&D.

According to the Centers for Disease Control and Prevention (CDC), eight of the 10 leading causes of death in the U.S. are illnesses, none of which would be covered by an accidental death and dismemberment policy. The 10th leading cause is suicide, which is also not covered by AD&D. Accidents rank as the third leading cause of death, but you’re seven times more likely to die from heart disease or cancer.

You don’t want your family’s death benefit contingent on the method of your death, especially one that occurs as infrequently as an accident.

AD&D vs. disability insurance

The same is true when comparing AD&D and disability insurance. Like the life insurance comparison above, the key difference between AD&D and disability insurance is the strength of coverage. If your disability is caused by an illness, you won’t receive benefits from an AD&D policy.

Insurance industry statistics show that only 9 to 10 percent of long-term disabilities result from serious accidents. The top causes of disability, according to the Council for Disability Awareness, are chronic conditions, with 25 percent caused by muscle and bone disorders like back problems, joint pain, and muscle pain.

In addition, even if you are injured in an accident, an AD&D policy will only pay if you lose a limb, your hearing, your eyesight, or other sense. If you break a leg or suffer a back injury from an accident, an AD&D policy will not pay benefits. A disability insurance policy, on the other hand, will pay benefits if the injury keeps you out of work for an extended period.

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Is AD&D insurance worth it?

If you can get group coverage for accidental death and dismemberment, then it’s worth having, especially if there’s no cost to you for the premium. But you likely don’t need to buy your own individual AD&D policy, especially if you have term life insurance and disability insurance.

As many insurance and financial experts like to say, you need your life or disability benefit regardless of how you died or were injured. That means you should have enough life insurance coverage to provide for your beneficiaries regardless of whether you died in an accident or through natural causes. Likewise, your individual disability insurance policy should cover a portion of your lost income if you lose a limb in an accident.

On the other hand, young people may want to consider supplemental AD&D coverage for two reasons.

  • First, young people under the age of 44 are more likely to die from unintentional injuries than any other cause, according to the CDC.
  • Second, if you die young from an accident, your dependents will likely have to live longer without your income than they would if you die later of natural causes.

This reality, along with the much greater need for life and disability insurance, makes the supplemental route the best way to get AD&D coverage.

Jack Wolstenholm is the head of content at Breeze.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published March 4, 2020
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