What's Accidental Death & Dismemberment Insurance (AD&D)?
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Accidental death and dismemberment insurance, also called AD&D insurance, offers coverage for your family if you lose a limb or die due to an accident. AD&D insurance is similar to a life insurance policy, in that both offer a death benefit, but AD&D won't pay out to a beneficiary if you die due to an illness.
While this makes accidental death and dismemberment coverage less expensive, it also means that you may need additional financial protection for your dependents, because the majority of people do not die from an accident.
What does AD&D insurance cover?
AD&D coverage is essentially a combination of two separate policies: accidental death insurance and dismemberment insurance. While they're purchased together, each portion of the policy has its own terms and is somewhat independent. AD&D insurance can be purchased as a stand-alone policy or as a rider on another life insurance policy, such as term life insurance.
If your primary concern is travel-related death or dismemberment, know that your credit card may already provide travel insurance free of charge.
Accidental death insurance
The accidental death insurance component is similar to life insurance, in that your beneficiary receives a payout if you die. However, AD&D only pays a death benefit if you die due to a covered accident, such as a plane crash or sudden fall. This means you can purchase a significant amount of accidental death insurance for a much lower premium than you would pay for a traditional life insurance policy.
While accidents only accounted for 6% of deaths in the United States in 2019, they made up 34.2% of deaths for people between ages 25 and 44 in that same year. This is why accidental death insurance typically isn't worth it if you're near retirement age or just need coverage for end-of-life expenses. However, it's a low-cost way to increase your life insurance coverage if you're a young parent or have significant debt, such as small-business loans, that would be passed on to others.
Accidental death policies typically have restrictions regarding high-risk activities, such as scuba diving or skydiving, and won't pay if an accident occurs during one of these. However, the list changes by insurer, so most people find a company that doesn't exclude their high-risk hobbies. In addition, most insurers will pay a higher death benefit if you pass away as a fare-paying passenger in a "common carrier" accident. Common carriers can include subways, trains, airplanes, ferries, taxis, buses and other licensed forms of transportation.
Dismemberment insurance
Dismemberment insurance offers coverage if you survive an accident but lose a limb or other body part, and some policies offer coverage for paralysis or other injuries as well. The costs associated with losing a limb can be particularly high. You not only have to pay for the immediate hospital expenses, but may also have to cover physical therapy, a prosthetic and income lost while you're out of work.
Payouts for dismemberment are typically listed as a percentage of your policy's death benefit, with a certain percentage corresponding to each limb or other body part (or combination). The most common payout structure is 50% of the death benefit per limb and 100% for the loss of multiple limbs or body parts (with the maximum total payout being 100%), but there are often differences by insurer.
Dismemberment policy payout percentages based on injury and insurer
Injury | AIG | Sun Life Financial | MassMutual |
|---|---|---|---|
| Loss of a thumb and index finger | None | 25% | None |
| Loss of a hand or foot | 50% | 50% | 50% |
| Loss of sight in one eye | 50% | 50% | 50% |
| Loss of two parts: hand, foot, sight in one eye | 100% | 100% | 100% |
| Quadriplegia | 100% | 100% | None |
| Paraplegia | 50% | 75% | None |
| Hemiplegia | 50% | None | None |
| Loss of speech or hearing | None | 50% | None |
| Loss of speech and hearing | None | 100% | None |
Life insurance vs. AD&D insurance: What's the difference?
The primary difference between life insurance and AD&D insurance is the set of circumstances under which a policy will pay a death benefit. Because AD&D insurance limits payouts to accidents, coverage is significantly cheaper. But you may also need life insurance to cover your family in case your death is due to illness.
We would typically recommend accidental death and dismemberment insurance as a supplement or rider to traditional life insurance, not as a stand-alone policy.
Another key difference is that AD&D covers a number of severe injuries in addition to the death benefit.
If you're concerned about your ability to cover medical expenses, you may favor AD&D's dismemberment benefits, but these are also restricted to accidents and don't cover a number of other medical issues. Term life insurance policies are quite cheap and can come with a variety of riders offering assistance such as disability income, waiver of premiums and an accelerated death benefit if you become permanently disabled.
Types of group AD&D insurance
If your company offers group life insurance, accidental death and dismemberment coverage is often provided alongside your policy. Group AD&D plan benefits are structured in the same manner as those for individual policies, but the company may refer to coverage by different names:
Coverage | Payer | How it works |
|---|---|---|
| Basic AD&D insurance | Employer | A set amount of coverage is included as part of your group life insurance policy, similar to a rider. |
| Supplemental AD&D insurance | Employee | You can purchase optional AD&D coverage in addition to the basic coverage. |
| Voluntary AD&D insurance | Employee | Similar to a stand-alone policy, you can purchase AD&D coverage without having a group life insurance policy. |
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