How does Accidental Death Insurance work?
It’s quite simple, really. You buy a contract with an insurance provider. That contract binds you, the insured, to pay the insurance provider a monthly fee.
In return, the insurance provider pays you, or your beneficiaries a lump sum of cash if conditions are met. Such conditions are if get severely injured, lose a limb, or die due to an accident.
Accidental death insurance is very similar to life insurance, apart from a few differences.
There are two important, but simple differences, between AD&D and life insurance.
It lasts your entire life, term life insurance does not
Since AD&D is a type of whole life insurance, it lasts your entire life. That means, no predefined end date (or term). This is important because if you compare AD&D to term, the cost is not that much different. And term life insurance covers more than Accidental Death insurance does.
But, term life insurance has a predefined end date. That means that once your policy ends, say 10, or 20 years from now, you’ll have to apply for a new life insurance policy. And this time, it will cost significantly more.
AD&D on the other hand, will not expire unless you stop paying the policy. So while the difference between AD&D and term life insurance is somewhat minimal while you are young, it becomes much larger as you grow older.
It’s far cheaper than other types of whole life insurance
You could raise the fact that the above example is of an AD&D policy, versus a term life insurance policy, which may not be an apple to apple comparison, as AD&D is a type of whole life insurance.
So let’s look at AD&D compared to the standard cash-value building whole life insurance policy.
The cost of an AD&D policy compared to a cash-value whole life insurance policy are far lower. A 30-year-old male could get $250,000 in AD&D coverage for about $21/month. That same person would pay roughly $123/month for the same amount of coverage in a cash-value whole life insurance policy.
AD&D covers death and injury due to an accident, life insurance only covers death
Life insurance covers just about any cause of death, with some rare exceptions. AD&D however, covers most causes of death, except due to age, or health. At the same time, life insurance does not cover loss of limbs or injury due to an accident where AD&D does.
Learn more about what is and isn’t covered.