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Textbook
1. General Insurance Concepts
2. Producer Roles and Receipt Types
3. Principles of Life Insurance
4. Underwriting
5. Term Life Insurance
6. Whole Life Insurance
7. Variable Insurance Products
8. Group Life Insurance
9. Life Insurance Provisions
10. Annuities
11. Taxation of Life Insurance Products
12. Qualified Retirement Plans
13. Health Insurance Basics
14. Required Policy Provisions
15. Optional Policy Provisions
16. Medical Expense Insurance
17. Group Health Insurance
18. Disability Income Insurance
19. Accidental Death and Dismemberment Insurance
20. Long Term Care Insurance
21. Dental Insurance
22. Section 125 Plans and Limited Policies
23. Federal Government Programs
24. Medigap and Medicaid
25. Health Insurance Taxation
26. Wrapping Up
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19. Accidental Death and Dismemberment Insurance
Achievable Life & Health
Our Insurance Life & Health course is in "early access"; the content on this page may be incomplete.

Accidental Death and Dismemberment Insurance

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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:

  1. Accidental death or dismemberment sustained while committing a crime.
  2. Being under the influence of alcohol or narcotics at the time of the accidental death or dismemberment.
  3. 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

Chapter Vocabulary

Definitions
Accidental Death & Dismemberment (AD&D)
(1) A type of health insurance policy. (2) A provision or rider attached to a life or disability income policy that pays either a specified amount if the insured dies, loses his/her sight, or loses a limb as the result of an accident.
Dismemberment
Loss of arm or leg by severance above the wrist or ankle. It also includes the total and permanent loss of sight.

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