Accidental Death and Dismemberment Insurance

Accidental Death and Dismemberment (AD&D) insurance is a type of accident insurance that pays a death benefit when death is caused by an accident. Some other health-related policies, such as certain long-term care or critical illness contracts, may also include limited death benefit provisions or riders.

AD&D is usually an inexpensive way to add extra protection, but it isn’t a substitute for life insurance. It pays a lump-sum benefit only for accidental death or covered dismemberment, and it doesn’t build cash value the way a whole life policy does.

The principal sum is the full benefit amount. It’s paid for accidental death or for severe dismemberment, such as the loss of both limbs or total blindness. Loss of two limbs, both eyes, or life typically results in 100% of the principal sum.

The capital sum is the amount paid for dismemberment, usually as a percentage of the principal sum. For example, losing one arm or one eye may result in 50%. Partial losses, such as a thumb and index finger, may result in 25% or less, depending on the policy.

The principal sum paid under an AD&D policy is paid in the same manner as a life insurance death benefit. You must name a beneficiary, and the death benefit can be paid using any of the settlement options commonly available for life insurance benefits.

AD&D policies often include a “physical examination and autopsy” provision. This allows the insurer to request an autopsy in the event of a death claim, as long as it isn’t prohibited by law. The insurer typically pays the cost.

The primary exclusions of these policies are:

1. Accidental death or dismemberment sustained while committing a crime.
2. Being impaired by alcohol or narcotics at the time of the accidental death or dismemberment.
3. Anything covered by workers’ compensation.

AD&D policies also typically exclude losses resulting from war, suicide, illness, or injuries sustained while engaging in hazardous activities or under the influence of substances, even if the person is not visibly impaired.

A common variation of AD&D sold in airport terminals and by travel agents is called travel accident insurance. This policy covers 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 & Dismemberment (AD&D) Insurance

• Pays a lump-sum benefit for death or dismemberment caused solely by accidental means.
• The principal sum is paid for death or severe loss (e.g., both limbs or both eyes).
• The capital sum is paid for dismemberment, typically as a percentage of the principal sum. Benefits follow a schedule of loss (e.g., 100% for death, 50% for one limb, 25% for thumb/index finger).
• It is not a substitute for life insurance and has no cash value.

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