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Life Insurance vs. Accidental Death and Dismemberment: Do You Need Both?

If you have loved ones who depend on you for financial support, purchasing or enrolling in the right insurance coverage can provide crucial security and peace of mind. Even if something happens to you, your family should not have to worry about paying for education, keeping the house, or other needs.

Traditionally, life insurance policies have been the coverage of choice in these situations. However, accidental death and dismemberment (AD&D) insurance is another option that offers some similar benefits while coming with its own advantages and disadvantages.

But what is the difference between life insurance and AD&D insurance? What does each type of insurance cover, and do you need both? Read on to learn more.

What Is Life Insurance?

Life insurance pays out benefits to your family members (or whoever you name as your beneficiary) if you pass away. A standard life insurance policy contract will indicate who is covered by the policy, the amount that the insurer will pay in the case of death (known as the death benefit), who the beneficiaries are, and other important details.

There are two basic types: term life insurance and permanent life insurance:

  • Term life insurance provides coverage for a certain period of time. If you get life insurance through your employer, the “term” is the same as your employment with the company. If you purchase your own plan independently, term lengths of 10 to 30 years are common. Either way, the death benefit is only paid out while the policy is in effect, and if you outlive your policy, you receive no benefit.
  • Permanent life insurance provides coverage for as long as you live. In addition to paying a death benefit when you pass away, a portion of your premiums is saved and used to gradually build cash value that you can access and use during your lifetime. While this can provide a nice “extra” source of savings and income in retirement, it also comes at a cost—permanent life insurance plans are more expensive, and cash value may not necessarily build as quickly as other types of investments.

While the majority of deaths will be covered, it is important to note that many life insurance policies do come with some exclusions. For example, your policy might exclude specific illnesses, certain risky activities, or suicide.

Some exclusions (for example, fraud) might apply over the lifetime of the contract, while others might only be in force during the “contestability period”—usually the first two years after purchasing your policy. Individual policy language can vary, so it is important to carefully review your contract.

Who Should Consider Life Insurance?

Most American families with at least one working-age adult depend on one or more full-time salaries to afford their desired standard of living. Life insurance policies are designed to protect them in case the unthinkable happens—and unlike AD&D insurance, benefits are paid out even if the death resulted from natural causes.

If your family would struggle to pay bills or maintain a high quality of life without your salary, purchasing a regular life insurance policy makes a great deal of sense. While nothing could ever truly replace the loss of a loved one, life insurance provides peace of mind, with the knowledge that your loved ones will still have a means of financial support after you die.

How Much Life Insurance Do I Need?

Many employees are offered a life insurance policy at no cost from their employer, but with limited coverage that would pay for end-of-life expenses (such as funeral costs) but not provide longer-term financial security for surviving family members. (Often this is $50,000, since this is the maximum amount that can be provided tax-free by an employer with at least 10 employees.) If the employee wants more coverage, they must purchase it themselves.

A common rule of thumb is that you should buy about 10 times your annual salary in coverage. However, this will not be true for everyone. You should consider how your family’s financial obligations are likely to change over the term of the policy, or without you there, and adjust accordingly. For example, if you are planning to have more children, or your spouse would need to hire childcare or household services if you pass away, 10 times your salary may not be enough.

As for term life vs permanent or whole life coverage, there are pros and cons to each. Term life makes sense if you already have a solid retirement plan and only need coverage during the time period where you have significant financial obligations—for example, while you still have children in the house, or until retirement. Permanent life insurance, meanwhile, might be considered in certain circumstances if you can afford the premiums and expect to have lifelong financial commitments (for example, caring for a disabled family member or paying significant estate taxes after death), or want to set up a trust or inheritance. Speaking with a financial planner can help you weigh your options.

What Is Accidental Death and Dismemberment Insurance?

As the name suggests, accidental death and dismemberment is an insurance policy that covers you in the case of a qualifying accidental death or certain accidental injuries.

  • Accidental death insurance: The policy pays out a death benefit if you die in an unexpected, non-natural event: for example, a car accident, drowning, or homicide.
  • Dismemberment coverage: Your policy will pay out a portion of the death benefit if the accident does not kill you but results in the loss of a body part or major body function, for example eyesight or hearing.

AD&D is usually not offered as a standalone insurance policy, but as a rider to either a life insurance or health insurance plan.

If you have an AD&D rider on your life insurance policy, this typically will mean that your beneficiaries would receive an additional death benefit if you were to pass away in an accident. In other words, your family would get a payout from both policies.

AD&D Insurance Often Comes With Significant Limitations

While AD&D insurance is often significantly cheaper than a traditional life insurance policy, it also comes with significant limitations and exclusions.

AD&D Doesn’t Apply to Every Death and Dismemberment

AD&D will only pay out if your death or injury is the result of an accident—other kinds of death or dismemberment will not result in benefits. It is estimated that natural causes account for more than 9 in 10 deaths, and AD&D insurance will never cover these deaths.

Add to that the fact that not all traumatic deaths will be covered by AD&D insurance anyway, and most people will avoid death or dismembering injury while their AD&D policy is in force. So, most people who purchase AD&D insurance will never receive any benefit from it.

Insurance Companies Limit the Definition of an “Accidental” Death

The definition of “accidental” death is subjective, and eligibility for benefits frequently hinges on not only the facts of the case, but also the specific language used in your policy. AD&D policies often include an extensive list of exclusions, including death or dismemberment by:

  • Illness, including mental illness
  • Suicide
  • Acts of war
  • Drug overdoses
  • Driving under the influence of drugs and alcohol
  • Non-commercial aviation
  • Participation in criminal activity

While some of these exclusions might also apply to your regular life insurance policy, AD&D policies tend to be much stricter about what is and is not a covered accident. It is common for beneficiaries to wait a long time before the insurance company makes a ruling on whether their family member’s death or dismemberment resulted from a qualifying accident. In some cases, forensic investigation or even an autopsy must be performed.

Do I Need AD&D Insurance?

The most important takeaway is that AD&D insurance should never be considered as a substitute or alternative to life insurance. Most people do not die of accidental causes or suffer dismembering injuries. Even those who die unexpectedly often do so for natural causes like stroke or heart attack, and AD&D will not apply. So, relying on AD&D alone to provide for your family is unwise.

That said, some people might consider AD&D as a supplement to a robust life insurance policy under certain circumstances. These might include:

  • People who work in dangerous occupations, such as construction workers or truck drivers.
  • People who enjoy hobbies or pastimes that have a high injury risk, for example competitive sports, scuba diving, or outdoor rock climbing.
  • Anyone with AD&D coverage and premiums provided at no or very low cost by their employer.

The primary advantage to AD&D over life insurance alone is that life insurance will not pay anything for severe or disabling injuries, while AD&D will. Losing limbs or eyesight, for example, can have just as severe of a financial impact on your family as your death would. And unlike workers’ compensation, AD&D can cover injuries that occur both in and out of the workplace.

But in general, you should view AD&D as a supplemental option that provides added protection. It should not be used as a replacement for life, workers’ compensation, or disability insurance.

Dealing With an Unfair Insurance Denial? Call Bryant Legal Group Today

Both life insurance and AD&D are supposed to give policyholders peace of mind. If the unthinkable happens, you want to know that your loved ones will have the means to support themselves.

Yet beneficiaries often struggle to get the benefits they paid for. Insurance companies frequently dispute legitimate claims that they say are not covered by the policy. When this happens, it is important to speak with an expert who can help you understand what is covered under your policy and fight back on your behalf if you are dealing with an unjustified coverage denial.

Bryant Legal Group is Chicago’s premier insurance litigation law firm. Our attorneys have extensive experience advising and representing policyholders in life and AD&D insurance disputes, and we work exclusively on behalf of those who receive benefits—never insurance companies.

To schedule your free consultation with one of our Chicago insurance attorneys, call us at (312) 313-6179 or complete our online form today.