The Pros and Cons of AD&D

Accidental injuries rank as the fifth leading cause of death in the U.S. Accidental death and dismemberment (AD&D) insurance can give your employees financial assistance when the unexpected happens.

AD&D insurance can be a valuable and low-cost addition to your current benefits package. But before offering AD&D coverage, it’s important to understand what AD&D covers and what it doesn’t.

Definition of “Death”

An AD&D policy will pay the policy’s face amount, or death benefit, to the beneficiary if the insured accidentally dies. “Accidental death” under the policy means a death caused by an unforeseen circumstance unrelated to the body. In other words, the death cannot be caused in any way by illness or the insured’s physical condition.

As with most life and health policies, AD&D policies do not cover claims resulting from illegal or criminal activities. They also exclude death by “malfunction of the body,” such as someone suffering a stroke or heart attack while driving. If the heart attack or stroke occurred before the accident and the accident resulted from that bodily malfunction, the policy would not pay. Many policies exclude coverage for death by suicide; others exclude coverage until the policy has been in effect for a certain time period, such as 24 months.

Many policies also impose a time limit on deaths caused by accident. In many cases, if an insured is involved in an accident that ultimately causes death, the policy will pay only if death occurs within 90 days of the accident. Most policies also stipulate that death must result directly from the injuries sustained in the accident. As an example of how this clause would apply, if an insured involved in an auto accident died from an infection contracted in the hospital, the policy would not pay.

Definition of “Dismemberment”

In addition to covering accidental death, AD&D policies pay if the insured suffers an accidental dismemberment. In most cases, the policy provides a scheduled benefit, or a specified portion of the death benefit, for dismemberment.

For example, if the insured accidentally loses one arm or one leg, the policy might pay half of the death benefit. If the insured loses two or more limbs (any combination of arms and legs), then he or she might receive the entire face value (death benefit) under the policy. After this, the insurer would likely terminate the policy because it would have paid out the entire face value.

Many AD&D policies also cover sudden and accidental loss of vision or hearing. The same principles apply: if one eye is lost, the insured receives half of the death benefit; if both eyes are lost, then the insured will receive the policy’s entire face value.

Some AD&D policies provide coverage for loss of speech or hearing, triplegia (the paralysis of three extremities), paraplegia (paralysis characterized by loss of movement or feeling in the lower half of the body), hemiplegia (paralysis of one half of the body), the loss of a thumb and index finger of the same hand, and a condition known as uniplegia, which is the complete and irreversible paralysis of one limb.

Pros

• Low premiums: Accidental death and other covered losses occur rarely, so AD&D costs much less than term life coverage with similar limits. This makes it an attractive benefit for your employees, even if offered on a voluntary basis.


• Pays for certain disabilities: AD&D holds particular appeal for young workers, who statistically are more likely to die from accident than from illness. The vast majority of these workers do not have individual disability insurance. AD&D benefits could help an insured recoup some of the income lost if he or she lost a limb, sight or hearing in an accident and couldn’t work. AD&D is especially valuable for employees whose jobs depend on their physical capabilities.


• “Double indemnity”: You can offer AD&D coverage to employees as a standalone policy or as an addition (endorsement) to a group term life policy. If bought as an addition to a term life policy, AD&D will provide “double indemnity,” or twice the death benefit, to the insured’s beneficiary.

Cons

• Limitations: AD&D insurance coverage has some important limitations. For example, many AD&D insurance policies do not pay benefits if the insured dies during surgery, has a mental or physical illness, has a bacterial infection or hernia or dies as the result of a drug overdose. That’s why AD&D coverage is no substitute for term life insurance. Policies also exclude death or dismemberment resulting from war.Some financial advisors say AD&D is a poor investment, since the conditions under which it pays benefits occur so rarely. However, if a breadwinner dies suddenly in an accident, AD&D benefits can make the family’s financial circumstances less stressful. And if a young person loses a limb, vision or hearing in an accident, AD&D benefits can help make up some of the income loss likely to result.

If you’re interested in offering AD&D for your employees, contact us! We can help you design a benefits plan that meets the needs of your employees and your organization.