14.4 Accidental Death & Dismemberment and Supplemental

Accidental Death & Dismemberment (AD&D)

AD&D insurance pays a benefit only when death or specified bodily losses result from an accident. It pays nothing for death or loss caused by illness. AD&D may be sold as a standalone policy, as a rider on life insurance (often the double indemnity rider), or as part of group or travel coverage. Group AD&D is a very common, low-cost employer add-on to group life, and the benefit is frequently set equal to the group life face amount.

Two benefit amounts anchor the contract:

• The principal sum — the full face amount, paid for accidental death or the loss of two or more members (e.g., both hands, both feet, sight in both eyes).
• The capital sum — a percentage of the principal sum (commonly 50%) paid for the loss of one member or sight in one eye.

Some contracts add dismemberment schedules paying smaller percentages for the loss of a thumb, finger, or partial use, but the principal and capital sums are the two figures the exam tests most.

How AD&D Benefits Are Calculated

Worked example. A policy carries a $200,000 principal sum.

• Accidental death: pays the principal sum = $200,000.
• Loss of one hand: pays the capital sum = 50% = $100,000.
• Loss of two limbs: pays the principal sum = $200,000.

Most policies cap total payments at the principal sum per accident. AD&D also commonly requires that death occur within 90 days of the accident (the time limit varies) and that the accident be the direct, sole cause of loss. War, suicide, and illness are standard exclusions.

Double Indemnity and Travel Accident

A double indemnity rider on a life policy doubles (sometimes triples) the death benefit when death is accidental. If a $250,000 whole life policy carries a double indemnity rider and the insured dies in a car accident within the time limit, the beneficiary receives $500,000. Death from natural causes pays only the base $250,000.

Travel accident and common carrier policies are narrow AD&D products that pay only for accidents occurring while traveling, often only as a fare-paying passenger on a common carrier (airline, train, bus). They are inexpensive precisely because the covered exposure is so limited.

Other Supplemental Coverages and Group Add-Ons

Supplemental health products are frequently offered as voluntary, employee-paid group benefits at the worksite:

The recurring exam theme: supplemental coverages are portable, indemnity-based, and not minimum essential coverage. Benefits go to the insured, premiums are usually employee-paid (so benefits are tax-free), and they pay on top of any major medical plan.

AD&D Exclusions, Dismemberment Schedule, and Common Traps

AD&D pays only when the accident is the direct and sole cause of death or loss, and most policies require the loss to occur within a stated window (commonly 90 days). Standard exclusions include suicide, self-inflicted injury, war, aviation other than as a fare-paying passenger, illegal occupation, and disease or bacterial infection (except infection through an accidental wound).

The dismemberment schedule lists losses against the principal sum: loss of two members or sight in both eyes pays the principal sum; loss of one member or sight in one eye pays the capital sum (usually 50%). The most-tested trap is that AD&D pays nothing for sickness or natural death — a heart attack or stroke that causes death is a natural loss, so neither a standalone AD&D policy nor a double indemnity rider pays the accidental amount. Producers must also remember AD&D is not a substitute for life insurance and should be positioned as a supplement that addresses the financial shock of an unexpected accident.

Worked Principal/Capital Sum Calculations

The dismemberment schedule produces tested numbers, so practice reading it. Suppose an AD&D policy has a $100,000 principal sum. An accident causing the loss of two limbs, or sight in both eyes, or one limb and one eye pays the full principal sum of $100,000. An accident causing the loss of a single member, such as one hand or sight in one eye, pays the capital sum, customarily 50%, or $50,000. Accidental death pays the full $100,000 principal sum.

A double-indemnity rider on a life policy works similarly, paying twice the face amount, so a $250,000 life policy with the rider pays $500,000 if death results from a covered accident, typically required to occur within 90 days of the accident.

The most tested point is the cause-of-loss restriction. AD&D and double-indemnity benefits pay only for losses resulting from accidental bodily injury, never from sickness or natural causes. Work the trap: an insured who dies of a heart attack while driving has died of a natural cause, so neither a standalone AD&D policy nor a double-indemnity rider pays the accidental amount, even though the death was sudden and unexpected, because the heart attack, not an external accident, caused it.

Older policies further narrow coverage with exclusions for losses from war, aviation other than as a fare-paying passenger, self-inflicted injury, and intoxication. Position AD&D and double indemnity as inexpensive supplements that respond to the narrow but financially severe risk of accidental death or dismemberment, never as a replacement for the broad protection of life insurance, which pays regardless of whether death is accidental or natural.