Accidental death & dismemberment coverage
Let's say a policyholder loses an arm in a farming accident. Their AD&D policy covers dismemberment, and their insurer pays them on a "per-member" basis. Any body part that can be lost or critically injured is referred to as a "member." For example, an arm, leg, and foot each represent a different member, and payouts vary by which is lost.
Another difference between life insurance and AD&D coverage is how challenging it can be to prove that a policyholder's loss was due to an accident. When a person dies, it tends to be clear-cut. The same is not necessarily true for injury. To collect AD&D insurance, a person must be able to prove that their injuries were a direct result of an accident.
When it comes to life insurance vs. AD&D, there is one more striking difference. AD&D coverage costs considerably less than a standard life insurance policy, primarily because it pays out under limited circumstances.
What is not covered by AD&D?
Not all AD&D claims pay out. Here are some situations not covered by an AD&D policy:
- Death resulting from illegal activity
- "Malfunction of the body," such as someone suffering a stroke while driving
- Death by suicide, unless the policy has been active for a specified period of time
- Death that occurs more than one year after an accident
Do you need both life insurance and AD&D?
If you ask yourself, "Do I need both life insurance and AD&D?" you're not alone. Life insurance pays beneficiaries a "death benefit" after the death of a policyholder. Accidental death and dismemberment (AD&D) pays out only if the policyholder dies or is seriously injured in an accident. AD&D coverage can be used as a supplement to life insurance, although it is not necessary.
In terms of financial planning, the priority is to land a life insurance policy with a high enough death benefit to cover the financial needs of beneficiaries. Looking at life insurance vs. AD&D, one thing is clear: Whether it's term life or permanent, no life insurance policy insures against dismemberment, paralysis, or the loss of a bodily function like AD&D coverage does.
As a result, an AD&D policy can complement life and health insurance policies. Health insurance helps keep policyholders healthy, and life insurance gives them peace of mind, knowing their loved ones will be on solid financial footing if they die. AD&D fills the gap by providing a payout to a policyholder who is severely injured, and, if that person dies, providing an additional death benefit.
How to buy AD&D and life insurance
There are several options for purchasing both AD&D coverage and life insurance.
Voluntary life and AD&D from work
Many employers provide both life insurance and AD&D coverage as a company benefit. Taking advantage of employer-sponsored insurance is a good way to secure coverage at a low price, and often without a medical examination requirement.
Open market
Buying life and AD&D coverage begins with shopping around. Just as a person is unlikely to buy the first house they see or the first car they drive, it makes little sense to buy an insurance policy without comparing it to others.
The best insurance companies help potential customers compare information about rates, restrictions, benefits, and supplemental life insurance. Here are a few other hallmarks of a great insurance company:
- Agents who provide all the information to make a good decision without applying pressure to buy
- A strong financial rating from the four major insurance company rating agencies: AM Best, Moody's, Standard & Poor's, and Fitch
- Reputation for excellent customer service
When it comes to life insurance vs. AD&D coverage, both have a place in financial planning, and each can be useful in the event of the unexpected.