Comparing different types of insurance is like downing a large bottle of wine. Both produce a degree of mental confusion, and you'll probably have a headache afterward. This is especially the case when you're deciding between policies with similar objectives, such as life insurance and accidental death and dismemberment coverage. While both will pay if you die, they're designed for very different purposes.
Life insurance is straightforward and easy to understand. If you die while the policy is in force, your insurer will pay the stated death benefit to your beneficiaries. The only exceptions occur during the early years of a policy, when the insurance company can refuse payment if you commit suicide or if you've misled them in your application for coverage. Life insurance is one of the cornerstones of financial planning. If you've purchased enough coverage, the death benefit should pay your burial costs and estate taxes, and leave your beneficiaries with the resources to adequately maintain their lifestyle.
Accidental Death and Dismemberment
Accidental death and dismemberment (AD&D) policies can be purchased as a standalone product or as an option on life and group insurance policies. They pay out a lump-sum death benefit, as life insurance does, in the event you're killed accidentally or die later as the direct result of an accident. This can sharply limit their usefulness. In 2015, the Centers for Disease Control and Prevention found only 146,571 deaths accidental from the year's total of 2,712,630. That's approximately 5.4 percent. However, AD&D policies also pay if you're maimed in an accident. Typically they pay half the benefit for loss of one limb or eye, and the full benefit for two.
Life versus AD&D
When you're deciding on your coverage, life insurance is fundamental for most young couples. In comparison, AD&D protection is only of marginal value. If your life or group policy includes AD&D, don't include the benefit amount in your planning. If the policy pays, it'll be a pleasant bonus for your beneficiaries, but you shouldn't count on it. Instead, calculate how much money it will take for your beneficiaries to maintain their lifestyle. If you don't know how to do that, your broker or various online calculators can help.
When AD&D Makes Sense
Although AD&D has significant shortcomings, there are times when it makes sense. For example, if you work in an industry such as construction or mining, where serious accidents are common, it might be worth owning. Some policies cover relatively dangerous hobbies such as rock climbing or mountain climbing, which might result in death or dismemberment. The best reason of all for holding AD&D coverage is when it's free. Membership in many group insurance plans includes a predetermined amount of AD&D coverage at no cost to you, and coverage that comes at no cost is worth having even if it never pays out.
Fred Decker is a trained chef and certified food-safety trainer. Decker wrote for the Saint John, New Brunswick Telegraph-Journal, and has been published in Canada's Hospitality and Foodservice magazine. He's held positions selling computers, insurance and mutual funds, and was educated at Memorial University of Newfoundland and the Northern Alberta Institute of Technology.