14.4 Accidental Death & Dismemberment and Supplemental

Accidental Death & Dismemberment (AD&D)

AD&D insurance pays a benefit only when death or a specified bodily loss results directly from an accident, independent of any illness. If the insured dies of cancer or a heart attack, AD&D pays nothing — that is the central distinction from ordinary life insurance, which pays on any covered cause. AD&D is sold as a stand-alone policy, as a rider on life insurance, and very commonly as a group employer benefit.

Principal Sum and Capital Sum

• Principal sum — the full benefit (the "face"), paid for accidental death or for the loss of two or more members (e.g., two hands, two feet, sight of both eyes, or one hand + one foot).
• Capital sum — a percentage of the principal sum, paid for the loss of one member or sight of one eye (commonly 50%). Lesser losses (a thumb, one finger) pay smaller scheduled percentages.

"Loss" of a limb generally means severance at or above the wrist or ankle; "loss" of an eye means total, irrecoverable loss of sight. A schedule lists each loss and its percentage.

Worked Numeric — AD&D

A group AD&D certificate has a $100,000 principal sum, capital sum 50% for a single member, and a double indemnity common-carrier provision (death while a fare-paying passenger pays 2x).

• Loss of one hand in a workshop accident: capital sum = 50% x $100,000 = $50,000.
• If instead the insured died as a paying airline passenger: 2 x $100,000 = $200,000.
• If the insured died of a stroke at home: $0 — not accidental.

Common Provisions and Exclusions

• Time limit (e.g., 90-180 days) — the accidental death must occur within a set time after the accident for the death benefit to be payable.
• Typical exclusions: suicide or self-inflicted injury, war, illness/disease, aviation other than as a passenger, and (often) injury while intoxicated or committing a felony.
• Dismemberment maximum — total payments for all losses from one accident usually cannot exceed the principal sum.

Other Supplemental Coverages

Several other supplemental products round out this exam topic and follow the same theme: narrow trigger, fixed or scheduled benefit, paid in addition to comprehensive coverage.

• Travel accident insurance — AD&D limited to losses while traveling, often a flat sum for a covered trip.
• Blanket health insurance — covers a constantly changing group defined by a common activity (sports teams, students, passengers, volunteers); no individual names or certificates are issued.
• Credit accident & health (credit disability) — pays the lender the insured's monthly loan payment if disabled; benefit cannot exceed the loan balance, and the creditor is the beneficiary.
• Accident-only / accident expense — pays medical expenses or scheduled amounts for injuries from accidents only, not sickness.
• Return-of-premium riders — refund some premiums if no claims are made (raises cost).
• Common-carrier / travel rider — pays an enhanced sum (often double) for accidental death while a fare-paying passenger on a scheduled common carrier.
• Disability income riders on AD&D — some group plans add a weekly indemnity for accident-caused disability.

Group vs. Individual Supplemental Trap

Group AD&D and group supplemental plans are usually noncontributory or contributory employer benefits, may be guaranteed issue up to a limit, and end when employment ends (with possible conversion). Individual supplemental policies are individually underwritten and portable.

Taxation of Supplemental Benefits

General rule: benefits an individual receives from supplemental health policies (AD&D, critical illness, hospital indemnity, specified disease, accident) bought with after-tax dollars are received income-tax-free. The exam contrasts this with two situations:

• Employer-paid premiums: if the employer pays the premium and did not include it in the employee's W-2 income, benefits the employee receives may be taxable to the extent the employer paid.
• AD&D death benefit: like life insurance, an accidental death benefit paid to a named beneficiary is generally income-tax-free.

Worked Numeric — Mixed Loss

A $200,000 AD&D policy: principal sum for two members, 50% capital sum for one. In one covered accident the insured loses one hand ($100,000) and then dies of the injuries within the time limit. The dismemberment maximum caps all losses from one accident at the principal sum, so the death benefit of $200,000 is paid and the earlier dismemberment is not stacked on top — total = $200,000, not $300,000.

Trap: AD&D never pays for natural-cause or illness death; capital sum (one member, ~50%) is less than principal sum (death or two members, 100%); and losses from a single accident cannot exceed the principal sum.

AD&D Capital Sums, Principal Sums, and Common Carrier

Accidental Death & Dismemberment (AD&D) pays only for losses caused by accidental bodily injury, never sickness or natural death. The principal sum is the full benefit paid for accidental death or for the loss of two members (two limbs, sight in both eyes, or one limb plus one eye). A capital sum is a smaller percentage paid for a single loss - commonly 50% of the principal sum for the loss of one hand, one foot, or sight in one eye.

Worked Numeric

On a $300,000 principal-sum AD&D policy, accidental death pays the full $300,000; loss of one hand pays the capital sum of $150,000; loss of two limbs pays the full $300,000. A common-carrier (travel) rider may multiply the benefit - say, double or triple the principal sum - when death occurs while a fare-paying passenger on a commercial carrier.

Supplemental Coverages

Supplemental products fill specific gaps: specified-disease and critical-illness plans pay lump sums on diagnosis; hospital-indemnity plans pay a flat daily amount per inpatient day regardless of the actual bill; and short-term medical offers temporary bridge coverage. All are written on accident or limited-benefit bases and pay in addition to any major medical, since they do not coordinate benefits.