Monday, August 2

Accidental death & dismemberment insurance is not a replacement for life insurance


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Life insurance is a contract between you and the life insurance company. You pay premiums (monthly or annually) for a payout that your living relatives will receive, known as the death benefit. Should you die, the insurance company pays the death benefit to your chosen beneficiary.

Accidental death and dismemberment life insurance (AD&D) pays a cash benefit for accidental death or loss of limbs, hearing, sight, or speech due to an accident only. Death or injury must occur as a direct result of an accident.

If you only have AD&D and do not die from an accident, your beneficiaries receive nothing. However, if you have life insurance, your beneficiaries receive a death benefit regardless of how you die.

Life insurance vs. AD&D

Most Americans who have life insurance are underinsured, and the disadvantage of AD&D is that it only covers death or dismemberment by accidents. If you die of natural causes or any reason other than an accident, AD&D doesn’t pay a death benefit.

Most employers offer some type of AD&D coverage as part of their employee benefits package. However, just as with employer-provided group life insurance, you lose this benefit if you retire, resign, or are terminated.

Most people get life insurance to cover the mortgage, education, and other expenses so their family can continue after they die. If you need life insurance to cover expenses that don’t include death by accident or accidental injury, traditional life insurance works. Also , you can add accidental death and dismemberment as a rider to your

term life insurance
policy.

There are two main types of life insurance policies to choose from: permanent life and term life. There are various term life products and permanent life products. Your life insurance needs change as you age, and you’ll need to consider children, marriage, divorce, retirement, and caring for aging parents.

Consider consulting a financial advisor, estates attorney, and accountant to ensure you have the proper coverage for your goals and life changes.

*If death is by covered accident

Deaths excluded from AD&D coverage

If you are working a job where accidents are likely or participate in adventure seeking activities, AD&D coverage may be worth it. However, AD&D doesn’t cover if you die from:

  • Suicide
  • Surgery
  • Physical or mental illness
  • Bacterial infection
  • Hernia
  • Drug overdose
  • War
  • Skydiving
  • Drunk driving
  • Car racing

A better alternative if you need AD&D coverage is to add it as a rider to your term life insurance.

Types of term and permanent life insurance policies

The difference between term life insurance and permanent life insurance is similar to the difference between renting an apartment (term life) and owning a home (permanent life).

When you rent, you have a lease for a certain term. When that lease is over, you can renew — but most likely with a rent increase. Likewise, term insurance lasts for a specified period, and when it’s up you can reapply for coverage , but the premiums most likely will go up as you age and your health deteriorates.

Permanent life insurance has a death benefit for your beneficiaries and a cash value that you can use during your lifetime. It’s like owning a home, where you gain equity that can be used as collateral — and your home can be left to your heirs leaving a legacy.

The best life insurance policy for you depends on your budget as well as your financial goals.



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