Accidental Death and Dismemberment (AD&D) Insurance

Accidents happen, but sometimes they can have a devastating impact on a person's life and their family. In these situations, having extra money can be incredibly helpful. This is where Accidental Death and Dismemberment (AD&D) insurance comes in. It provides funds to help you adjust to life after a serious accident and stay financially afloat during difficult times. 

In this post, we will discuss what AD&D insurance is, how it works, and its pros and cons. 

What is accidental death and dismemberment insurance?

Accidental death and dismemberment insurance provides a cash benefit if you die due to injuries sustained in an accident or suffer a loss of limb or function, such as speech, hearing or sight, in an accident. 

The insurer pays a fixed death benefit to the designated beneficiary or beneficiaries upon your death. Whereas, in the event of a serious injury in an accident, you — the insured — will receive a cash benefit. How much this benefit will be depends on the type of injury you have. 

For instance, a loss of one thing (e.g. a foot, a hand, or hearing in one ear) may result in a payout equaling 50% of the total coverage amount. But a loss of two or more things (e.g. hearing in both the ears) may qualify you for the full benefit amount. 

A typical AD&D policy covers the following accidents: 

• Vehicular accidents
• Work-related machinery accidents
• Drowning
• Falls
• Fires
• Poisoning
• Accidents on public transport
• Choking and suffocating

An AD&D insurance policy typically include several exclusions — i.e. situations in which the insurer will not pay benefits. The exact situations included in the exclusion list may vary from by insurer. Typically, AD&D insurance does not pay benefits for: 

• Injury or death caused by illness, including mental illness
• Drug overdose
• Self-inflicted injuries
• Suicides
• Any injury which happened before the coverage started
• Injury or death due to drunk-driving crashes
• Injury or death while engaging in a criminal activity
• Injury or death that occurs while the insured serves in armed forces
• Injury or death while engaging in an extreme sport, like bungee jumping

What is accidental death coverage?

An AD&D insurance policy includes two types of coverage. 

1. Accidental death coverage 

It pays a fixed benefit amount if the insured dies from injuries sustained in an accident. Generally, accidental death coverage pays out in circumstances such as, homicide, accidents involving heavy machinery, drowning, and traffic accidents.

Although the AD&D coverage can be purchased separately, most prefer to buy it as a health insurance or life insurance add-on. When added to life insurance in the form of a rider, the maximum AD&D coverage cannot exceed the original policy’s face value. 

More often than not, the AD&D coverage amount in these instances is the same as the life insurance policy’s face amount. So if you die in an accident, the insurer will pay double the policy’s face value to your beneficiary. In insurance parlance,   this is known as “double indemnity”. 

2. Dismemberment coverage

The second part of the AD&D policy comprises dismemberment coverage. It pays living benefits in the event of a loss of limb or function due to an accident. The amount of the benefit depends on the type of dismemberment you have suffered. 

How much does AD&D coverage cost?

How much you will pay for AD&D insurance coverage depends on several factors, including your age, the amount of coverage you need, and the insurance company you choose. Typically, the monthly premiums for AD&D coverage are very affordable, but don’t forget to shop around because premium rates vary — sometimes, quite significantly — from insurer to insurer.

What are the advantages and disadvantages of AD&D insurance coverage?

AD&D insurance offers limited coverage. It pays out only if your death or injury is due to an accident — not natural causes or illnesses. Therefore, relying only on it to cover the needs of your family or business is not a smart idea. Life insurance covers almost all types of death, is a far better option for securing the future of those you may leave behind. All the same, AD&D insurance can be a valuable addition to your life insurance coverage. It is cheaper and provides living benefits in the event of dismemberment, which can be as financially devastating for your family as death. 

Knowing about the pros and cons of AD&D insurance can help you determine whether it is right for you or not. 

Pros

• No medical exam or health questions

When you apply for AD&D coverage, you won’t have to take a medical exam or answer health questions. This means you can get approved despite having a serious health issue. Because it involves minimal medical underwriting, AD&D insurance is an option for all those who do not qualify for standard life insurance due to poor health. You will likely be not turned down if you meet the age requirements. Usually, that means being between the ages of 18 and 70 or 80.  

• Shorter application process 

With a standard life insurance plan, you likely have to wait a few weeks to get an approval. AD&D insurance plans, in contrast, have much shorter application process. In most instances, you can get approved within two to three days.  

• Very affordable premiums 

Because AD&D insurance provides limited coverage, it costs much less than other types of insurance. Some Canadian employers even offer this coverage at little or no cost to their workers. Even when bought individually, AD&D insurance premiums are usually very affordable, costing not more than a few dollars a month. 

Cons

• Coverage limitations

Your AD&D insurance plan will only pay upon certain events. If your death occurs in a circumstance not covered by your contract, your beneficiary will not receive the benefit amount. 

Keep in mind each AD&D policy may have different exclusions. Therefore, carefully read the terms of your policy to understand its limitations. 

If you are someone who enjoys extreme sports like skydiving or mountain biking, opt for a policy that covers these activities. 

• Not always portable

If you have AD&D insurance coverage through work, you may not be able to take it with you when you switch jobs. 

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What are the alternatives to AD&D Insurance benefits?

For most people, term life insurance typically provides better coverage than AD&D insurance. That’s because term life insurance covers all causes of death (except suicide for the first two year of the policy). 

While term life insurance is more expensive than AD&D insurance on average, the price difference is not all that much for young and healthy applicants. Alongside term life insurance, you may want to consider buying disability insurance. It protects your biggest asset — your ability to earn. 

If you are unable to earn due to disability or illness, your disability insurance plan will pay a fixed monthly sum for a certain period. Between life insurance and disability insurance, you will be covered for almost anything, including natural death, accidental death, and severe injuries resulting from accidents.  

Conclusion

AD&D insurance covers death in exceptional circumstances. Hence, it is not a substitute for life insurance. But it can be a valuable addition to your life insurance coverage since it provides living benefits in the event of severe injury in an accident. You may even consider buying AD&D coverage separately if your job puts you at high risk of injury or if you cannot get standard life insurance due to health problems. 

Frequently Asked Questions

Does AD&D insurance cover health issues?  

AD&D insurance does not cover death or disabilities resulting from natural causes, such as heart disease or cancer. 

However, if the death occurs due to an illness precipitated by an accident, AD&D insurance may pay. For example, Greg, who has no history of heart problems, dies from a heart attack caused by a car accident. In this situation, his AD&D insurance policy will likely pay the accidental death benefit. 

Who should get AD&D insurance?  

Since AD&D coverage comes into play only in the event of an accident, it isn’t a fit for everyone. That said, if you have access to it through work for free, you should absolutely sign-up for it. If you have to buy AD&D coverage on your own, consider it if you are in a high-risk job or do not qualify for life insurance because of underlying health issues. Even though AD&D insurance offers protection in only limited circumstances, some protection is better than having none. 

What kinds of accidents are included? 

Typically, AD&D insurance covers: 

• Death
• Paralysis
• Limb loss
• Muteness
• Blindness
• Deafness
• Other permanent disabilities

What situations are excluded? 

AD&D insurance only covers accidental incidents. You will not receive any benefit in the event of a self-inflicted injury. Likewise, an injury sustained while engaging in professional sports or while under the influence is excluded, as is death from natural causes.