Term Life Insurance vs. Accidental Death & Dismemberment

AD&D pays only if a death is accidental, or you suffer a severe injury. Term life covers more causes of death.

NerdWalletOct 5, 2017
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You might think your life insurance needs are covered with an accidental death and dismemberment policy, but that’s not the case.

Term life insurance and accidental death and dismemberment insurance, or AD&D, are two very different types of policies. Knowing the difference is crucial to buying the right coverage for your needs.

Term life insurance

Term life insurance is basic coverage that pays out if you die within a specific time period, regardless of the cause of death. It will pay out whether you die of an illness, accident or other cause. The only exception is suicide, which is usually not covered within the first two years of owning the policy. (Your policy will have the exact details.)

If you want to ensure your family gets a life insurance payout if you die, choose life insurance, not AD&D.

With term life insurance, you choose the amount of coverage and the policy length. You can get life insurance quotes online.

Term lengths typically range from 10 to 30 years. If you die after the term ends, there’s no payout because the policy has expired. You can renew or purchase a new policy at the end of your term, but your life insurance rates will be higher than before because you’ll be older — and they'll be even higher if you’ve developed any new medical conditions, such as high blood pressure or diabetes.

Accidental death and dismemberment

AD&D insurance may be purchased at work, as a stand-alone product or as a rider on a life insurance policy.

Unlike term life insurance, AD&D policies pay out only if you are killed or injured in an accident.

To qualify for a payout for injury, you must lose a body part or the ability to hear, see or speak. If you suffer an injury, the policy generally pays out only part of the full benefit.

The exact payouts will be listed in your policy. For example, an AD&D policy from Sun Life Financial offers these payouts, among others, as a percentage of the policy’s face value. For example, if the face value is $10,000, a 50% payout is $5,000.

AD&D policy example

Accidental injury

Percent of policy face value paid out

Loss of speech and hearing

100%

Quadriplegia

100%

Paraplegia

75%

Loss of sight in one eye

50%

Loss of speech only

50%

Loss of hearing only

50%

Loss of limb (arm or leg)

50%

Loss of thumb and index finger

25%

Source: Sun Life Financial. Other AD&D policies and insurers may have different payouts.

Limitations of AD&D

Although AD&D insurance may seem like a good idea, ask yourself if it’s really worth the money.

First, the chances of dying from an illness are greater than the chances of dying from an accident. Among the leading causes of death, accidents are No. 4, after heart disease, cancer and chronic lower-respiratory diseases, according to 2015 data from the Centers for Disease Control and Prevention.

And if you die because of an accident but not right away, your beneficiaries might not see any benefits. To collect on an AD&D policy, it must be proved that a death or injury was directly caused by the accident or occurred within a certain time frame after the accident, usually three months.

AD&D policies often exclude deaths due to high-risk activities such as skydiving or car racing. And deaths caused by a drug overdose, drunken or drug-impaired driving by the insured person, war, complications from surgery, mental illness, suicide and certain other circumstances likely won’t be covered.

Therefore, if your goal is to provide your family with a financial safety net if you die, life insurance is the right purchase. AD&D could be a good supplemental policy if you already own life insurance, especially If you can get AD&D free through your employer.