Your financial obligations don’t stop when you die.
Many are passed on to your surviving spouse, children, or parents. Your unexpected death could leave loved ones responsible for funeral costs, debt, and taxes, and for living expenses your income currently covers.
To ease the financial burden, many people buy life insurance, a type of insurance that pays out a benefit to your beneficiaries — such as a spouse or children — if you die. Life insurance comes in many forms, and what kind of policy you buy determines what kind of protection your beneficiaries receive.
Not everyone can qualify for life insurance, so many policyholders instead purchase a policy called accidental death and dismemberment (AD&D).
Life Insurance vs. AD&D Insurance
Both life and accidental death insurance pay out to beneficiaries when a policyholder dies. But they cover different circumstances.
What Is Life Insurance?
Life insurance is a protective policy you buy to cover beneficiaries — such as your spouse and children — in case you die and they’re suddenly without your income.
Life insurance policies come in two main forms: whole and term life insurance.
- Term Life Insurance through a company like Ladder includes a stated death benefit (the payout amount) and number of years of life insurance coverage — typically 5, 10, 20, or 30 years. If you die within the coverage period, your beneficiaries get a lump-sum payment for the death benefit amount.
- Whole Life Insurance, or permanent life insurance, comes without a coverage term and includes an investment savings account that grows to cover your death benefit.
What Is Accidental Death & Dismemberment?
Accidental death and dismemberment insurance is a policy that pays out in case you die by accident, such as in a car crash, or experience loss of sight, a limb, speech, or hearing.
AD&D policies typically pay a percentage, stated in the insurance contract, for dismemberment.
Do You Need Both Life Insurance and AD&D?
Accidental death policies are useful in addition to a regular term or whole life insurance policy if you want a larger payout, but might not be necessary at all.
Basic life insurance covers death by most causes, including accidental death, while AD&D covers only accidental death or dismemberment and not death by other causes.
If you purchase AD&D in addition to life insurance — often in the form of a rider on the basic policy — your beneficiaries would receive an added benefit (i.e. a larger payout) in case of accidental death.
“I would generally only support an AD&D rider if the client was engaged in a more high-risk occupation or hobby that may justify the narrow scope of this coverage,” says Daniel J. Adams, founder and president at CEG Life Insurance Services.
What any type of insurance policy covers depends on the insurer you buy from, which could be your bank or credit union or a stand-alone insurance company. But in general, you’ll find:
- Life insurance alone generally covers death by natural causes, illness, disease (including heart attack or cancer), drug overdose, accident, or murder. After a waiting period, it usually also covers suicide, but it does not cover non-fatal injuries.
- AD&D covers death by accident or murder, but not by natural causes. It also partially pays out for loss of a body part or function.
- AD&D policies typically don’t cover accidental deaths caused by drug overdose, drunk driving, war, surgery complications, or suicide.
You can buy either of these insurance products its own, but you may miss out on some coverage by doing so.
Young people are often attracted to AD&D because it typically comes with lower premiums than a whole or term life insurance policy, and they’re less likely to die of illness or natural causes than by accident.
However, you benefit from purchasing a life insurance policy at a young age to lock in a low rate. As you age — and your chance of dying increases — life insurance premiums go up.
Alternatives to AD&D Insurance
Instead of buying a separate AD&D policy in addition to your life insurance policy, some experts recommend adding AD&D coverage as a rider or purchasing disability insurance.
Accidental death and dismemberment is most common as a rider — an added section that provides additional coverage — on a term or whole life insurance policy than as a standalone policy.
In this case, the policy pays out a base amount if you die by natural causes, and it pays out the base amount plus the additional rider amount in case of accidental death or dismemberment.
Disability insurance is a type of income protection that pays out in case you’re unable to work because of a short- or long-term injury or disability.
Disability insurance covers the types of injury or disability covered under AD&D, plus a broader range of events that make you unable to work, but it doesn’t include a death benefit in case of accidental death.
Is AD&D Insurance Worth It?
AD&D policies and riders tend to be affordable — around $30 per month depending on your age and circumstances — and can offer an additional payout for your beneficiaries. But it might not be the most cost-effective way to gain that benefit, as it once was.
“Especially when considering the price of term life insurance, one may be able to get the same amount of coverage in basic life insurance for not much more than an AD&D rider would cost,” says Adams.
If you have significant health concerns that would make a basic life insurance policy prohibitively expensive or disqualify you from coverage altogether, a stand-alone AD&D policy could be your only option.
Ask your insurance agent about the carrier’s life insurance benefits to understand the costs associated with increasing them. If an increased payout under a basic policy costs more than an AD&D rider, a rider or additional policy might be worth buying.
Accidents are the third leading cause of death in the United States, according to a CDC report. They’re the No. 1 cause of death for people under age 45.
Cancer and heart disease — both covered by life insurance — are the leading causes of death for people over age 45.
Whether or not you should buy life insurance in general depends on your circumstances. A death benefit can cover expenses your beneficiaries might otherwise struggle to afford, including:
- Funerary and disposition costs
- Day-to-day expenses that your income or assets cover now
- Debts they become responsible for after your death
- Estate taxes in the case of a large inheritance
AD&D is likely not necessary for someone who mostly stays in place, but if your lifestyle exposes you to potential accidents such as vehicle collisions, accidental death insurance could offer peace of mind for your family or other beneficiaries.
If you have high-risk hobbies, such as skydiving or mountain climbing, however, you’ll likely have trouble qualifying for basic life insurance, making AD&D your best option.
Choosing a life insurance policy is an imperfect science. To help make the process a little easier, we’ve put together a list of the best life insurance companies.
As with any insurance, you can never be sure of the circumstances you’ll face and what kind of coverage you’ll need — but you leave yourself or your family at financial risk if you don’t have coverage.
Basic term or whole life insurance policies can protect your family’s finances in case you die unexpectedly, but not everyone can qualify for comprehensive coverage. An accidental death and dismemberment policy fills the gap.
An insurance agent can advise you on a company’s policies — but their job is to sell you a policy, not solely to help you make the right decision for your situation, so research carefully before committing.