14.4 Accidental Death & Dismemberment and Supplemental

Accidental Death & Dismemberment Basics

Accidental Death & Dismemberment (AD&D) insurance pays a benefit when an accident causes death or the loss of body members or functions. The defining limitation, tested repeatedly, is that AD&D responds to accidents only — death or injury caused by illness, disease, or natural causes is never covered. AD&D can be sold as a standalone policy, attached as a rider to a life or health policy, or provided through a group/blanket arrangement.

Two dollar amounts drive the policy:

• The principal sum — the full face amount paid for accidental death (or for the most severe dismemberments).
• The capital sum — a percentage of the principal sum paid for lesser losses, set by a schedule.

The Capital Sum Schedule

Dismemberment benefits follow a schedule expressed as a fraction of the principal sum. A representative schedule:

'Loss' generally means actual severance above the wrist/ankle, or total and permanent loss of use or of sight. Most schedules cap total payments at the principal sum for any single accident, even if multiple losses occur.

Worked Example — Principal vs. Capital Sum

An AD&D policy has a $100,000 principal sum.

• The insured dies in a car accident: the policy pays the full principal sum, $100,000.
• Alternatively, the insured loses the sight in one eye in that accident: the schedule pays the capital sum, 50% = $50,000.
• If instead the insured dies of a heart attack (a sickness, not an accident): the AD&D policy pays $0, because no accident occurred.

This contrast — full principal sum for accidental death, scheduled capital sum for dismemberment, and nothing for sickness — is the heart of AD&D exam questions.

Double Indemnity and Accidental Death Riders

A double-indemnity (accidental death benefit, ADB) rider on a life insurance policy pays an additional amount — usually equal to the face amount, hence 'double' — when the insured's death is accidental.

If a $250,000 whole life policy carries a double-indemnity rider and the insured dies in a covered accident, the beneficiary receives $250,000 base plus $250,000 rider = $500,000. If the same insured instead dies of cancer, only the $250,000 base face amount is paid, because the rider responds to accidents alone.

Common rider provisions: the death must occur within 90 days of the accident, and deaths from war, aviation (other than as a fare-paying passenger), illegal activity, or self-inflicted injury are excluded. The rider is inexpensive because accidental death is statistically rare, but for the same reason it should never be sold as a substitute for adequate base coverage — most people die of illness, where the rider pays nothing extra.

Medicare Supplement (Medigap) Insurance

Medicare Supplement (Medigap) policies are supplemental health products that pay the deductibles, coinsurance, and copayments that Original Medicare (Parts A and B) leaves to the beneficiary. Critical exam points:

• Medigap plans are standardized and sold by letter — Plans A, B, C, D, F, G, K, L, M, and N. A 'Plan G' is identical in benefits from any insurer; carriers compete on price and service only.
• There is a 6-month open enrollment beginning when the beneficiary is 65 and enrolled in Part B, during which coverage is guaranteed-issue.
• Medigap does not cover long-term custodial care, vision, dental, or hearing, and it works only with Original Medicare — it cannot pair with a Medicare Advantage plan.
• Each standardized plan must be guaranteed renewable, and an insurer cannot cancel it for health reasons once issued.

After the 6-month open-enrollment window closes, an applicant may be subject to medical underwriting and could be charged more or declined, so timing the purchase is a key planning point. Plans F and C, which covered the Part B deductible, are closed to people newly eligible for Medicare on or after January 1, 2020; producers should steer new enrollees toward Plan G or the lower-premium high-deductible options instead. Selling a duplicate Medigap policy to someone who already has one is an unfair trade practice in most states.

Other Supplemental Coverages and the Big Trap

Several narrow products round out the supplemental category:

• Travel accident insurance — AD&D limited to losses while traveling.
• Blanket policies — cover a constantly changing group (passengers, students, team members) without naming individuals.
• Group AD&D — an employer-paid benefit, typically a multiple of salary, for accidental loss.

The overarching trap across this entire section: every product here is supplemental. AD&D is not life insurance (it ignores sickness), hospital indemnity is not major medical, and a cancer policy is not comprehensive coverage. A producer who represents any supplemental product as full life or health protection commits misrepresentation and exposes the client to catastrophic gaps.

The AD&D Loss Schedule and a Dismemberment Worked Example

Accidental death and dismemberment coverage pays on a schedule tied to the principal sum (death benefit). Dismemberment losses pay a capital sum — a fraction of the principal sum set by a loss schedule — and the exam tests the arithmetic of that schedule.

Worked dismemberment example: an AD&D policy has a $100,000 principal sum. The insured loses sight in one eye in a covered accident; the schedule pays a capital sum of 50% = $50,000. Losing sight in both eyes, or any two scheduled members, pays the full $100,000 principal sum. Accidental death pays the entire principal sum. Note the time and causation limits: the loss must result from accidental means, occur within a stated period (often 90 days), and is excluded if caused by illness, suicide, war, or hazardous avocations.

The recurring exam trap is the difference between an AD&D policy and an accidental death rider (double indemnity) on a life policy: the rider adds a multiple of the base life face only for accidental death and pays nothing for dismemberment, while a standalone AD&D policy pays the full death/dismemberment schedule above. Like other supplemental coverages — hospital indemnity, specified disease, dental, vision — AD&D is limited-benefit and does not satisfy major-medical/ACA requirements.

A producer must disclose this clearly; presenting AD&D or any limited-benefit product as comprehensive health coverage is an unfair trade practice.