How AD&D Insurance Fills a Coverage Gap

You probably have health insurance to protect yourself from catastrophic medical expenses, life insurance to protect your family from the loss of your salary, and disability income coverage to replace income lost due to disability. So which of these policies will cover you if you lose a limb, sight or hearing in an accident?

You might be surprised to learn that none of these policies will pay you for the loss of a limb or one of your key senses. Yes, your medical policy would cover bills for related medical treatments. And your disability income policy would replace some of your income if your disability prevented you from working or forced you to work shorter hours. But only one type of policy will pay benefits for the loss of a limb, sight or hearing. It’s accidental death and dismemberment coverage, or AD&D.

AD&D insurance provides compensation when an insured dies or loses a limb, vision, speech or hearing as a direct result of an accident. If an illness were to cause any of these serious consequences, you would generally have some warning and time to prepare yourself and your family. But when an accident occurs, it’s sudden and unexpected, making the loss more traumatic. Although AD&D coverage can’t replace your loved one’s life, limb or senses, it can help ease the trauma.

You can buy AD&D coverage on a standalone basis or as an addition to a term life policy. For the cost of a couple of espresso drinks every month, an individual under age 65 can get coverage of up to $250,000, although you can buy limits of up to $10 million.

AD&D coverage is particularly attractive to younger individuals, who are statistically more likely to die from or suffer an accident than an illness. For these people, adding an AD&D rider to their life insurance policy might be cheaper than increasing the face value of their life policy. If you buy an AD&D rider, the insurance company will pay a “double indemnity.” This means if a covered accident caused the insured’s death, the beneficiary would receive double benefits: the policy’s death benefit, plus the AD&D benefit.

What AD&D Covers

An AD&D policy will pay benefits if the insured suffers an “accidental death.” This means an unforeseen circumstance, unrelated to illness or malfunction of the body, caused the death.

To illustrate the difference between life coverage and AD&D, consider an auto accident victim. If someone suffered a stroke or heart attack that caused an accident while driving, a life policy would pay. It would also pay if another driver caused the accident. But an AD&D policy would not pay if the “bodily malfunction”—the heart attack or stroke—caused the death. It would only pay if the accident itself caused the death.

AD&D also pays benefits for certain types of disabilities, although it is not a substitute for disability income insurance.
Many policies will pay benefits if a covered accident causes an insured to lose extremities, hearing or sight. The benefits you receive depend on the extent of loss. For example, a policy might pay half of the death benefit for the accidental loss of one hand or arm or one foot or leg. If the insured lost two or more limbs (a combination of arms and legs), the policy would pay the entire face value (death benefit).

AD&D policies may also cover the sudden loss of vision. The same principles apply. If an insured loses one eye (or its use), the policy would pay one half of the benefit. If he/she loses both eyes, then the policy will pay the entire face value.

It’s important to keep in mind that AD&D policies do not cover death by any form of illegal or crime-related activities. Policies also don’t cover death by suicide or death by a malfunction of the body. Most insurers exclude coverage for death or dismemberment caused by war or terrorism-related events, but some insurers will cover this at extra cost.

Because they don’t cover death from illness, an AD&D policy is no substitute for life insurance coverage. Nevertheless, it can provide valuable supplemental coverage—at a low cost.