Accidental Death and Dismemberment (AD&D)
Accidental Death and Dismemberment (AD&D) insurance provides benefits if the insured dies or suffers specific serious injuries due to an accident. AD&D is often offered as a rider to life insurance or as a standalone voluntary benefit.
How AD&D Works
AD&D pays benefits only for losses caused by accidents, not illness or natural causes. The policy defines what qualifies as a covered accident and specifies payment amounts for various losses.
Key Benefit Terms
| Term | Definition |
|---|---|
| Principal Sum | Full benefit paid for accidental death or most severe losses (e.g., loss of two limbs) |
| Capital Sum | Benefit paid for specific losses (often a percentage of principal sum) |
| Covered Accident | An unintended, unforeseen event that directly causes injury or death |
Schedule of Benefits (Capital Sum)
AD&D policies include a schedule of benefits that specifies the percentage of the principal sum paid for each type of loss:
| Loss | Typical Benefit |
|---|---|
| Loss of Life | 100% of Principal Sum |
| Loss of Both Hands or Both Feet | 100% of Principal Sum |
| Loss of Sight in Both Eyes | 100% of Principal Sum |
| Loss of One Hand and One Foot | 100% of Principal Sum |
| Loss of One Hand/Foot and Sight in One Eye | 100% of Principal Sum |
| Loss of Speech and Hearing | 100% of Principal Sum |
| Loss of One Hand or One Foot | 50% of Principal Sum |
| Loss of Sight in One Eye | 50% of Principal Sum |
| Loss of Speech or Hearing | 50% of Principal Sum |
| Loss of Thumb and Index Finger (same hand) | 25% of Principal Sum |
Definition of Loss: "Loss" typically means complete severance (amputation) or total, irrecoverable loss of function.
Types of AD&D Coverage
Voluntary AD&D
- Purchased by individuals or offered as optional workplace benefit
- Premiums typically low ($5-$20/month for $100,000+ coverage)
- Can be portable (continue coverage after leaving employer)
Group AD&D
- Employer-sponsored coverage
- Often included as part of group life insurance
- Coverage typically 1-3x annual salary
Travel Accident Insurance
- Covers accidental death/dismemberment while traveling
- May be included in credit cards or purchased separately
- Common coverage: airplane accidents, travel-related accidents
Common AD&D Exclusions
AD&D policies do NOT pay for losses caused by:
| Exclusion | Example |
|---|---|
| Illness or Disease | Heart attack, stroke, cancer |
| Suicide or Self-Inflicted Injury | Intentional self-harm |
| War or Military Action | Combat injuries |
| Participation in a Crime | Injury while committing a felony |
| Intoxication | Accidents while legally intoxicated |
| Drug Use | Accidents while under influence of non-prescribed drugs |
| High-Risk Activities | Skydiving, bungee jumping (unless covered by rider) |
| Pre-Existing Conditions | Injuries related to prior conditions |
AD&D vs. Life Insurance
| Feature | AD&D | Life Insurance |
|---|---|---|
| Death Benefit | Accidental death only | Any cause of death |
| Dismemberment Benefit | Yes | No |
| Premium Cost | Much lower | Higher |
| Underwriting | Minimal or none | Medical underwriting |
| Claim Frequency | Low (most deaths aren't accidental) | Higher |
Exam Tip: AD&D should supplement life insurance, not replace it. Only about 5-6% of deaths are accidental, so most people will never collect AD&D benefits.
Common Riders
| Rider | Description |
|---|---|
| Seatbelt/Airbag | Additional benefit if wearing seatbelt or airbag deploys |
| Common Carrier | Additional benefit for accidents on planes, trains, buses |
| Education Benefit | Pays for dependent children's education if insured dies |
| Exposure/Disappearance | Covers death from exposure or if body never found |
| Coma Benefit | Monthly payments if accident causes extended coma |
| Rehabilitation Benefit | Covers rehab/retraining after dismemberment |
What is the "principal sum" in an AD&D policy?
Which of the following would typically be EXCLUDED from AD&D coverage?
According to a typical AD&D schedule of benefits, what percentage of the principal sum is paid for loss of one hand?
26.4 Limited Benefit Plans
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