Life Insurance vs AD & D: What are the Differences?

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Life Insurance vs AD & D: What are the Differences?
High angle view of a person’s hand protecting red heart with family figures

Choosing the perfect life insurance policy involves important decisions. In addition to deciding how much coverage you require and how much you can afford, you’ll likely be asked if you’re interested in AD&D life insurance. If you’re not quite sure how to answer that question, fear not. Here, we’ll explain the difference between life insurance and AD&D to give you the confidence to purchase the right policy.

What is life insurance?

In short, life insurance represents an agreement between an insurance company and a policyholder — the policyholder agrees to make premium payments, and the insurance company promises to pay out to the policyholder’s beneficiaries upon the death of the policyholder. The amount paid is typically referred to as the “death benefit” or “face amount.”

Life insurance coverage

Life insurance coverage comes in all shapes and sizes. There’s term life insurance, a policy that is in effect for a predetermined number of years. And there are permanent policies like universal and whole life insurance, designed to remain in effect as long as premiums are paid. What all of these policy types have in common is a death benefit.

As mentioned, the death benefit only pays out after the death of the policyholder. While some permanent policies allow terminally ill policyholders to receive a portion of their death benefit prior to their death, typically, a check is not written until the policyholder passes away.

What is not covered by life insurance?

For most people, the primary reason to purchase life insurance is to make sure their loved ones are taken care of after their death. Policyholders count on that protection for their beneficiaries. However, life insurance does not always pay off. Here are some of the circumstances under which an insurer may not make payment:

  • Suicide: Depending on the state of residence and the policy, beneficiaries may not receive a death benefit if the policyholder commits suicide within a specific window of time. For example, if the holder commits suicide in the first two years of a policy, beneficiaries may only receive a refund of premiums paid.
  • Lying on application: If the policyholder dies, the insurance company may investigate, and if they learn, for instance, that the deceased lied about smoking, they can deny payment. The same is true if a person lies about any other risky activity, like being a mountain climber, skydiver, or even a part-time mercenary.
  • Breaking the law: Imagine that a policyholder is killed committing a crime, like robbing a bank. The life insurance company has the right to deny payment.
  • War death: It can be tough for a journalist who covers wars to score life insurance because insurance companies are all about risk. Or say you’re from a war-torn country and travel home regularly — you may come under the war exclusion included in most life insurance policies.

Note: American policyholders who move to another country should check with their insurance company to make sure their policy will stay in effect no matter where they live at the time of their death.

What is accidental death & dismemberment (AD&D) insurance?

What is AD&D life insurance? AD&D stands for “accidental death and dismemberment” insurance. Like a life insurance policy, AD&D pays a policyholder’s beneficiaries a set amount upon their death — but with this insurance, death must be a direct result of an accident. If a policyholder does not die in an accident but loses a major function as the ability to speak, see, or hear, AD&D pays the policyholder a specified amount.

Accidental death & dismemberment coverage

Let’s say a policyholder loses an arm in a farming accident. Their AD&D policy covers dismemberment, and their insurer pays them on a “per-member” basis. Any body part that can be lost or critically injured is referred to as a “member.” For example, an arm, leg, and foot each represent a different member, and payouts vary by which is lost.

Another difference between life insurance and AD&D coverage is how challenging it can be to prove that a policyholder’s loss was due to an accident. When a person dies, it tends to be clear-cut. The same is not necessarily true for injury. To collect AD&D insurance, a person must be able to prove that their injuries were a direct result of an accident.

When it comes to life insurance vs. AD&D, there is one more striking difference. AD&D coverage costs considerably less than a standard life insurance policy, primarily because it pays out under limited circumstances.

What is not covered by AD&D?

Not all AD&D claims payout. Here are some situations not covered by an AD&D policy:

  • Death resulting from illegal activity
  • “Malfunction of the body,” such as someone suffering a stroke while driving
  • Death by suicide, unless the policy has been active for a specified period of time
  • A death that occurs more than one year after an accident

Life insurance vs. AD&D

The term “life insurance vs. AD&D” makes it sound as if the two types of insurance are in competition. That is not the case. AD&D coverage can be used as a supplement to life insurance, although it is not necessary.

Do you need both life insurance and AD&D?

If you ask yourself, “Do I need both life insurance and AD&D?” you’re not alone. Life insurance pays beneficiaries a “death benefit” after the death of a policyholder. Accidental death and dismemberment (AD&D) payout only if the policyholder dies or is seriously injured in an accident.

In terms of financial planning, the priority is to land a life insurance policy with a high-enough death benefit to cover the financial needs of beneficiaries. Looking at life insurance vs. AD&D, one thing is clear: Whether it’s term life or permanent, no life insurance policy insures against dismemberment, paralysis, or the loss of a bodily function like AD&D coverage does.

As a result, an AD&D policy can complement life and health insurance policies. Health insurance helps keep policyholders healthy, and life insurance gives them peace of mind, knowing their loved ones will be on solid financial footing if they die. AD&D fills the gap by providing a payout to a policyholder who is severely injured, and, if that person dies, providing an additional death benefit.

How to buy AD&D and life insurance

There are several options for purchasing both AD&D coverage and life insurance.

Voluntary life and AD&D from work

Many employers provide both life insurance and AD&D coverage as a company benefit. Taking advantage of employer-sponsored insurance is a good way to secure coverage at a low price, and often without a medical examination requirement.

Open market

Buying life and AD&D coverage begins with shopping around. Just as a person is unlikely to buy the first house they see or the first car they drive, it makes little sense to buy an insurance policy without comparing it to others.

The best insurance companies help potential customers compare information about rates, restrictions, benefits, and supplemental life insurance. Here are a few other hallmarks of a great insurance company:

  • Agents who provide all the information to make a good decision without applying pressure to buy
  • A strong financial rating from the four major insurance company rating agencies: A.M. Best, Moody’s, Standard & Poor’s, and Fitch
  • Reputation for excellent customer service

When it comes to life insurance vs. AD&D coverage, both have a place in financial planning, and each can be useful in the event of the unexpected.

Life Insurance vs AD & D: What are the Differences?


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