Accidental Death and Dismemberment vs. Term Life Insurance

Unfortunately, all of us have to die one day but when you do, will your loved ones suffer financially? If you answered yes, you need an insurance policy to support your family after your death.

If you already have insurance do you have the right policy?

For example, If you think your life insurance needs are covered with an accidental death and dismemberment policy, you’re wrong.

Today, we explain the difference between accidental death and dismemberment insurance and term life insurance to help you choose the right policy for your needs.

What is Accidental Death and Dismemberment Insurance?

Accidental death and dismemberment (ADD) insurance provides a payment to your beneficiary if you die or get injured in a covered accident. For example, if you die from a heart attack or cancer, there’s no payout. To qualify for a payout for injury, you must lose a body part or the ability to hear, see, or speak. Generally, an ADD policy would cover:

Death
Quadriplegia
Loss of sight in at least one eye
Loss of speech
Loss of hearing
Loss of limb
Loss of thumb or index finger

If you die in an accident covered by accidental death and dismemberment, your beneficiaries receive the full payout. If you suffer an injury, the policy generally pays out only part of the benefit.

The exact payouts will be listed in your policy.

Accidental death and dismemberment insurance can be purchased as a standalone product or as a rider on a term life insurance policy.

What is Term Life Insurance?

Term life Insurance is basic coverage for a set amount of time which pays a cash amount if you die within the specific time period, regardless of cause of death . You pay premiums for the entire length of the term and once the term is up, your death benefit is gone.

Term life does not have a cash value component so your entire premium is simply used to keep the policy active. Once the term is up, you stop paying premiums and the policy expires. This is what makes term life one of the most inexpensive life insurance policies.

This type of life insurance has a specific coverage period such as 10, 15, 20, 25, and 30 years which allows you to buy coverage based on your needs.

However, term life offers you no cash value component. Your premiums only go towards the policy and don’t earn interest or accumulate.

Do I Need Accidental Death and Dismemberment if I Already Have Term Life Insurance?

Being prepared for the unexpected is crucial but before you purchase an accidental death and dismemberment policy consider if you really need this type of policy.

You’re much less likely to die from an accident than from cancer or heart disease. According to the Centers for Disease Control and Prevention, just 130,557 of the 2.5 million deaths reported in 2013 were accidental. Comparatively, almost 589,430 people died of cancer and 610,000 died of heart disease in 2015, both covered by term life insurance.

If you die because of an accident but not right away, your beneficiaries might not see any benefits. To collect on an accidental death and dismemberment policy, your beneficiaries must be able to prove your death or injury was directly caused by a qualifying accident or within a certain time frame after it occurred.

An accidental death and dismemberment policy can also be limiting. ADD policies often exclude deaths due to high-risk activities such as:

Skydiving or car racing.
Most likely, deaths caused by certain circumstances including the following won’t be covered:
A drug overdose
Drunken driving (by the insured person)
War
Complications from surgery
Mental illness
Suicide

Term life insurance provides more coverage and often the chance for a higher payout for your loved ones. Although you’ll pay higher premiums for term life, you’ll rest assured your family will be provided for should the unexpected happen regardless of cause of death.

This is where an insurance agent can be extremely useful. They can help you understand the language in your policy, alleviate your concerns and fears, and guide your decision around which insurance policy is right for you.

About Council for Disability Awareness

Council for Disability Awareness has written 478 posts in this blog.

The Council for Disability Awareness is a nonprofit organization dedicated to educating the American public about the risk and consequences of experiencing an income-interrupting illness or injury. The CDA engages in research, communications, and educational activities that provide information and helpful resources to wage earners, employers, financial advisors, consultants, and others who are concerned about the personal and financial impact a disability can have on wage earners and their families.