Accidental death and dismemberment versus life insurance: Understanding the difference

Information courtesy of USAA Life Insurance Company and USAA Life Insurance Company of New York

Shopping for life insurance can be daunting. There are so many questions: How much do I need? What's the best type? Should I get coverage for my loved ones?

Further along in the process, added questions arise. Here's a common one: Do I need accidental death and dismemberment insurance, and if so, why?

Accidental death and dismemberment insurance is worth considering. In 2020, unintentional injuries or accidents were the fourth leading cause of death in the U.S., according to a report from research firm Statista (Opens in new window).^{See note1} Read on to understand how AD&D coverage compares to standard life insurance — and whether it makes sense for you.

What's accidental death and dismemberment insurance?

Cause of death can be categorized a few different ways. Most deaths are from natural causes, such as dying of a heart attack, old age or cancer. Accidental deaths, on the other hand, happen much less often and are caused by things like traffic accidents or falls.

This is where AD&D comes into play. It supplies insurance coverage for death or dismemberment by a tragic accident. AD&D can come in the form of a standalone policy, or it can be attached to a standard life insurance policy as a rider.

How does AD&D work?

Accidental death and dismemberment policies are often considered a specialty type of insurance protection. Think of them as part life insurance and part disability insurance that offers coverage under two different situations.

Accidental death

Unlike standard life insurance, which typically pays out after your death no matter the cause, AD&D insurance only pays out for accidental deaths and injuries as defined in the policy. These definitions have a limited scope, as accidents only cause a small percentage of deaths. Read the policy carefully to figure out which accidents are covered.

Common examples of accidental death covered by AD&D include:

• Car, train or plane accidents.
• Workplace accidents.
• Fires.
• Firearm-related accidents.
• Falls.

Accidental death and dismemberment insurance often has restrictions against activities like scuba diving, skydiving or other high-risk hobbies. If death is caused by one of these activities, the policy usually won't pay out.

But if you die as a fare-paying passenger in a common carrier accident — on a subway, train, airplane, ferry, taxi or bus — the AD&D insurance may pay out a higher death benefit.

Accidental dismemberment

Dismemberment coverage pays out if you survive an accident but lose a limb or, for some policies, if you suffer paralysis or another serious injury. Losing a limb can bring many unexpected expenses — hospital bills, physical therapy, a possible prosthetic and income loss while you're out of work. In this sense, dismemberment coverage is most like disability insurance.

Typically, the payout for dismemberment is a part of your policy's death benefit, often with a set percentage corresponding to each limb. For example, a company may pay 50% of the death benefit if the insured loses their arm. In the case of losing multiple limbs, like both legs, they may pay the full benefit.

How is AD&D insurance different from life insurance?

It can be tricky to understand the differences between AD&D insurance and life insurance.

Like standard life insurance coverage, if the insured dies, the AD&D policy pays a death benefit to the policy's named beneficiary. But if the insured person's cause of death is not considered accidental — for example, if the death was due to a medical condition— the AD&D policy may not pay out.

This can be problematic if you're relying on AD&D as your sole source of death benefit protection for your family.

How can I get AD&D insurance?

In many cases, it's less expensive to buy AD&D insurance than it is to buy a standard life insurance policy because AD&D insurance doesn't offer the same comprehensive coverage. An AD&D policy can be purchased as a standalone policy, as a rider to a standard life insurance policy or as part of group life insurance.

AD&D riders

Riders can often be added to your life insurance policy at an extra cost — though some policies automatically include AD&D coverage. If the insured dies because of an accident, the beneficiaries could receive both the life insurance policy's death benefit and the benefit from the rider.

Standalone AD&D policy

Usually inexpensive for the coverage it offers due to the low likelihood of accidental death — though most standalone policies exclude certain high-risk hobbies. These policies usually include other stipulations on the payout based on the cause of death. For example, death caused by a car accident might pay out more. If you're in an accident but die of a heart attack at the hospital while being treated, it might not pay out at all.

Group life insurance

Group coverage also can include AD&D coverage, whether as an employer-paid benefit or as an individual purchase that supplements the group policy.

Who needs AD&D?

Most life insurance professionals don't recommend using an AD&D policy as your only form of life insurance. But there are some instances where it makes sense to supplement your standard life insurance policy.

Perhaps you're young and lack the financial resources needed to buy the amount of life insurance coverage you should have. Maybe your lifestyle or work environment lends you to feel that AD&D coverage would deliver peace of mind. Assessing these scenarios, you can start to see where AD&D has a place in some life insurance plans.

If you're considering an AD&D policy or thinking about buying life insurance, talk to one of USAA's licensed professionals. They can help you explore your options and find the right insurance for you and your needs.