14.4 Accidental Death & Dismemberment and Supplemental
Key Takeaways
AD&D pays only for losses caused by accidental bodily injury, never from sickness or natural causes.
The principal sum is paid for accidental death or loss of two members; the capital sum (often half) is paid for loss of one member.
Double/triple indemnity riders multiply the life face amount only when death is accidental.
Death typically must occur within about 90 days of the accident, and exclusions include war, suicide, and illness.
Benefits on individually owned after-tax accident policies are received income-tax-free.
Accidental death and dismemberment (AD&D) insurance and other supplemental products round out a producer's health portfolio. AD&D pays only for losses resulting from accidental bodily injury — never from sickness or natural causes — making it inexpensive but narrow. The exam emphasizes the principal-sum/capital-sum structure, the double-indemnity rider, and how supplemental coverages interact with primary plans.
The Principal Sum and Capital Sum
AD&D defines benefits around the principal sum — the full amount payable for accidental death or for the loss of two specified members. The capital sum is the lesser amount (commonly one-half of the principal) paid for the loss of one member.
| Loss | Benefit |
|---|---|
| Accidental death | 100% of principal sum |
| Loss of two limbs or sight in both eyes | 100% (principal sum) |
| Loss of one limb or sight in one eye | 50% (capital sum) |
| Loss of thumb and index finger of one hand | 25% (schedule) |
"Loss" of a limb generally means severance at or above the wrist or ankle, and loss of sight means total, irrecoverable blindness. Death benefits usually require death to occur within a set time (often 90 days) of the accident.
The accident must be the direct and independent cause of loss. If a covered injury is complicated by a pre-existing disease, insurers may deny or reduce the claim, arguing sickness — not the accident alone — caused the death. This sole-cause requirement is what keeps AD&D premiums low and is a recurring exam point distinguishing it from broad life coverage.
Worked Example — AD&D Payout
A policy carries a $200,000 principal sum. An insured loses sight in one eye in a covered accident — that is a single-member loss, so the capital sum applies: 50% x $200,000 = $100,000. Had the insured lost both hands, the full $200,000 principal sum would be paid.
Double Indemnity and Common Riders
- Double (or triple) indemnity: a life-policy rider that pays two (or three) times the face amount if death is accidental. A $100,000 policy with double indemnity pays $200,000 on accidental death.
- Common carrier benefit: an enhanced amount if the accident occurs while a fare-paying passenger on a commercial carrier (airline, bus, train).
- Seat belt / air bag benefit: an extra fixed amount if the insured was properly restrained.
These riders pay only for accidental death; the accident must be the direct cause, independent of all other causes. Common exclusions include war, suicide, illness, and self-inflicted injury.
Other Supplemental Products
| Product | What It Does |
|---|---|
| Accident expense | Reimburses medical costs from accidents up to a limit |
| Travel accident | Time- or trip-limited AD&D for travel |
| Medicare Supplement | Fills Medicare deductibles/coinsurance (standardized plans) |
| Disability income | Replaces lost wages during disability |
These supplemental products share a common design logic: they pay defined cash or schedule benefits for a narrow trigger, carry low premiums, and stack on top of primary coverage. Travel accident and common-carrier benefits, for instance, often expire when the trip ends, while Medicare Supplement plans are standardized and renewable for life. Understanding which products are reimbursement-based and which are valued (indemnity) benefits lets a producer assemble a layered plan without creating overinsurance or coverage gaps.
Group AD&D and Taxation
AD&D is frequently sold as a low-cost group rider on group life. Key tax and structural points:
- Individually owned AD&D / accident benefits paid for with after-tax dollars are received income-tax-free.
- Employer-paid group AD&D follows group life rules; the cost of coverage over $50,000 may create imputed income, but accidental-death proceeds themselves are generally not taxable to the beneficiary.
- AD&D is pure accident coverage — a death from a heart attack or cancer pays nothing, a frequent exam trap that distinguishes AD&D from ordinary life insurance.
Worked Example — Double Indemnity Trap
A $250,000 whole life policy includes a double indemnity rider. The insured dies of natural causes (cancer). The beneficiary receives the $250,000 face amount only — the rider adds nothing because the death was not accidental.
Compare an accidental death: a $250,000 policy with double indemnity pays $500,000 if the insured dies in a covered car accident within the rider's time limit. The base face amount is always paid; the rider's extra benefit hinges entirely on whether the cause was an accident as defined in the contract.
AD&D Definitions, Exclusions, and Coordination
AD&D pays only for loss caused by accidental bodily injury, never sickness. The principal sum is the full benefit paid for accidental death; the capital sum is a scheduled percentage paid for dismemberment (loss of limbs or sight). Most contracts require the loss to occur within a set window (often 90-180 days) of the accident.
Common Exclusions
| Typical AD&D exclusion |
|---|
| War or act of war |
| Suicide or intentional self-injury |
| Illness, disease, bacterial infection (except from accidental cut) |
| Aviation other than as a fare-paying passenger |
Worked trap - the double-indemnity rider: a life policy's accidental death (double indemnity) rider pays twice the face amount only if death is accidental, within the time limit, and not excluded. If the insured dies of a heart attack (a sickness), the rider pays nothing extra - only the base face amount is paid. Examiners build scenarios where the cause of death is a disease to test whether you know AD&D and double-indemnity benefits are accident-only.
An AD&D policy has a $200,000 principal sum. The insured loses sight in one eye in a covered accident. How much is paid?
$200,000 (full principal sum)
$100,000 (capital sum, typically half the principal)
$50,000
Nothing, because loss of one eye is not covered
An insured with a life policy and a double indemnity rider dies of a heart attack. What does the beneficiary receive?
Double the face amount, because any death is covered
Only the policy face amount, because the death was not accidental
The capital sum
Nothing, because the rider voids the base policy
Sections you finish are checked off in the contents.