Accidental death and dismemberment insurance (AD&D) is unique in that it is the only type of health insurance with a death benefit. While AD&D does represent a relatively inexpensive means of enhancing one’s insurance program, it is not a substitute for life insurance. AD&D pays a lump sum benefit only in the event of accidental death or dismemberment. AD&D does not offer any of the cash value features of a whole life policy.
A lump sum payment is made in the event of death or dismemberment by accidental means. Dismemberment occurs when the insured loses a foot above the ankle, hand above the wrist, or total sight in both eyes as a result of an accident.
The death benefit payable under an AD&D policy is called the principal sum. In a typical AD&D policy, the dismemberment benefit is 50% of the principal sum, referred to as the capital sum. Most policies will also pay the principal sum in the event of a severe dismemberment (loss of 2 limbs or total blindness).
The principal sum paid on an AD&D policy is paid in the same manner as a life insurance death benefit. A beneficiary must be designated and the death benefit can be paid under any of the settlement options common to life insurance benefits.
The primary exclusions of these policies are:
Accidental death or dismemberment sustained while committing a crime.
Being under the influence of alcohol or narcotics at the time of the accidental death or dismemberment.
Anything covered by workers’ compensation.
In addition, AD&D policies do not cover loss of digits, (fingers and toes). Since coverage is very limited, premiums are low.
A common variation of AD&D that is sold in airport terminals and by travel agents is called travel accident insurance. This policy will cover you while flying on a regularly scheduled commercial flight, but not on private planes. Coverage is written to cover one specific trip only.
Lesson Summary
Accidental Death and Dismemberment insurance (AD&D) is a unique form of health insurance due to its death benefit feature. Although AD&D is affordable, it should not be considered a replacement for life insurance.
AD&D provides a lump sum benefit for accidental death or dismemberment.
AD&D does not offer cash value features found in whole life policies.
Dismemberment is defined by specific criteria such as loss of a foot, hand, or total sight due to an accident.
The death benefit, known as the principal sum, is paid in the event of accidental death or dismemberment. Some typical features include:
A dismemberment benefit of 50% of the principal sum
Payout of the principal sum for severe dismemberment like loss of 2 limbs or total blindness
Similar payout process to life insurance benefits, with designated beneficiaries and settlement options
Exclusions in AD&D policies are:
Accidental death or dismemberment during criminal activities
Being under the influence of substances at the time of the incident
Incidents covered by workers’ compensation
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