What is AD&D Insurance?
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Dear PWR Planner,
I have the ability to buy AD&D Life Insurance at work. The coverage would cost me less and I would get a higher death benefit than the Term policy I currently have. Should I buy it? I don't understand the difference?
- Insurance Irene
Dear Irene,
In general, life insurance is purchased to give those who are dependent on your income a lump sum of cash upon your death so they can sustain their current lifestyle. An AD&D policy stands for accidental death and dismemberment and is a type of life insurance. AD&D has some specific requirements for when it will and will not pay death benefits to the named beneficiaries. This restriction in payments is why we most often recommend Term over AD&D.
What is covered
AD&D policies pay out only if you are killed or injured in an accident. Accidents that result in death or injury, such as, a car or plane crash would qualify, but accidents from high-adrenaline sports, skydiving or car racing, would not. Also, if the accident was caused by the insured because they were under the influence of drugs or alcohol, it would also not be covered. Lastly, if the insured does not pass away as a direct result from the accident, but instead dies from another disease or complication after the accident, the policy would also not pay. To qualify for a payout for injury, you must lose a body part or the ability to hear, see or speak. Injuries generally pay out only part of the full death benefit.
Therefore, to get paid out under AD&D life insurance, you must pass away or lose a body part or function from a pure accident which is unforeseen, unintentional and immediate.
Term vs. AD&D
Term insurance will pay out for almost any type of death claim as long as you are covered with an active policy at the time of death. The primary exclusion for Term insurance is usually a suicide clause that lasts, most often, for the first two years of the policy.
AD&D does not cover the top two causes of death which Term does. Heart disease and cancer amount to 44.9% of deaths (from the CDC's 2015-2016: NCHS, National Vital Statistics System, Mortality Report*). Death's caused by accident (unintentional injuries), from the same report, only accounted for 5.9% of deaths. So, statistically qualifying for an AD&D payout is much less likely than regular Term insurance.
Why we don't recommend AD&D
Overall, AD&D insurance is not recommended because of the limited scope for claims. AD&D is less risky to the insurance agencies because there is a lower probability they will have to pay the beneficiaries. This is why they can offer reasonable prices and higher coverage. Just remember, you always get what you pay for.
If you are going to buy life insurance, we recommend you purchase Term. If AD&D is the only coverage you can afford, or it is free, then something is better than nothing. But almost always, Term insurance will leave you and your dependents with no gaps in coverage. Paying a little extra money for a lot more coverage is worth it.
Each policy is different, talk to an independent licensed life insurance broker to understand what is and is not covered under your own policies. Talk to a professional before making any changes to your insurance coverages
For more information on types of life insurance, read Linda's article on "Term vs. Whole" Life Insurance
Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.
Sources:*CDC Report, https://www.nerdwallet.com/blog/insurance/life-insurance-accidental-death/