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Accidental Death & Dismemberment Insurance vs. Life Insurance: The Differences

Learn how accidental death + dismemberment coverage is different from life insurance as both policies will pay death benefits.

No one wants to assume bad things will happen. However, they are possible.

To help protect your family against the chance of you dying or being dismembered, people often consider buying life insurance or accidental death & dismemberment (AD&D) insurance.

These policies may pay your family if certain negative events happen.

The exact coverage depends on the type of policy you buy.

If a qualifying event triggers your policy, it will pay out money to you or your beneficiary, depending on the event type.

The money can be used to help your family continue to live as normal a life as possible.

Here’s what you need to know about AD&D vs. life insurance.

This information will help you make an educated decision on which is best for your particular circumstances.

How Does AD&D Work?

AD&D coverage is a type of insurance that pays out in one of two circumstances.

First, it pays out if you die from an accident of some sort.

If you die in an accident, the benefit will get paid to your beneficiaries.

Accidental death and dismemberment insurance pays out if you get dismembered, too.

This means it may cover death or injury.

If you lose your eyesight, a limb, or a digit, such as a finger, the policy pays out a partial amount.

It doesn’t cover everything, though.

What isn't covered

Death from health issues won’t be covered. Neither will drug overdoses, drinking and driving, or suicide deaths.

Deaths due to war or high-risk activities, such as sky diving, may not be covered, either.

Your policy details exactly what is and isn’t covered. Read it to understand any exceptions that exist.

Payouts may vary

The amount paid out for death or dismemberment depends on the type of claim.

It may pay 25% if you lose a finger, 50% if you lose a limb or 100% if you lose two limbs. The policy pays out 100% if you die.

Each policy is different, so check yours to see what the payouts are.

Dying in an accident or getting dismembered are relatively rare events.

These aren’t as common as dying from health issues, so this coverage is usually affordable.

Where to get AD&D coverage

You may be able to purchase AD&D coverage as an employee benefit through your job.

If you do, the coverage will likely end when you leave your employer.

You may be able to purchase an AD&D policy from an insurance salesperson.

This coverage would last as long as you keep the policy in effect.

You may also be able to purchase it as a rider to a life insurance policy.

Credit unions may offer a small amount of AD&D coverage as a benefit.

They may allow you to purchase additional coverage, too.

When it makes sense for you

People may find AD&D coverage attractive for many reasons.

First, it’s usually cheaper than life insurance. This can be attractive if you’re on a budget.

However:

AD&D insurance does not cover death from all circumstances.

Buying this type of policy simply to save money may leave your family in a tight spot if you die from a non-covered reason.

You may also want to buy this coverage if you work in a job prone to accidents. Certain professions are at higher risk than others.

For instance, an accountant wouldn’t likely die in a workplace accident. Someone working with heavy machinery or on power lines may, though.

Check with the AD&D policy before you buy it to make sure there aren’t any exclusions due to your particular line of work.

If you assume it will cover you but there is an exception, it could be a nasty surprise for your family.

How Does Life Insurance Work?

Life insurance coverage comes in many varieties, but it boils down to one simple fact in most cases.

If you die when your life insurance policy is active, the life insurance company pays a death benefit to your beneficiaries.

Life insurance covers a much wider variety of deaths than AD&D insurance does.

If you die due to a health condition, you’re covered.

You may even be covered if you die due to suicide (in some instances), from drug overdoses, or high-risk activities, assuming your policy doesn’t have exclusions.

There are two major types of life insurance coverage:

  • Term life insurance pays out only if you die during the term of the policy. The term may be 10, 20, or 30 years or any other term you decide to purchase.
  • Whole life insurance stays in effect your entire life. This type of policy is usually much more expensive and you must pay premiums your whole life in most cases.

Life insurance companies cover a more comprehensive range of deaths, so it’s more likely they’ll have to pay out the amount of coverage you purchased compared to AD&D insurance.

This means life insurance typically costs more than AD&D coverage since AD&D coverage only pays out if you die due to an accident or you get dismembered.

You can purchase life insurance through a life insurance agent or life insurance broker.

Sometimes, credit unions may send you offers for life insurance, as well.

Some jobs may provide group term life insurance as an employee benefit, too.

Workplace group term life insurance coverage may be automatic up to a certain amount.

You may also be able to purchase additional coverage up to a specific limit without a medical exam.

Group term life insurance through a job usually ends when your relationship with the employer ends.

When life insurance makes sense

Life insurance is more attractive than AD&D insurance as long as you can afford the premiums.

The coverage pays out for most deaths, although certain exceptions may exist.

The downside:

Life insurance costs more than AD&D insurance.

Life insurance doesn’t usually pay out for dismemberment, either.

Life insurance is highly customizable depending on what options you want.

You can purchase term life insurance or one of several varieties of permanent life insurance.

Having more options allows you to find the policy that fits your family’s unique circumstances.

How to Choose Between AD&D vs. Life Insurance

Choosing between AD&D vs. life insurance depends on your family’s needs.

Ideally, most families would likely choose life insurance as it pays out in more cases.

However, families on a tight budget that cannot afford life insurance may be better off with AD&D coverage than no coverage at all.

Consider your job

If you work in a risky profession covered by AD&D insurance, it may make sense to have both if you want your family to have extra funds if you die or get dismembered.

It’s also essential to realize AD&D insurance offers dismemberment coverage which life insurance usually doesn’t.

This coverage could be critical if you have an accident that makes it so you can no longer work.

Consider both coverages

There’s no rule saying you have to choose one or the other, though.

You could decide to purchase both types of coverage. Alternatively, you may buy life insurance but get AD&D coverage through a workplace benefit.

That said:

Purchasing your own AD&D policy probably isn’t the smartest move for most families.

It may make sense in certain situations, but most people may be better off with a life insurance policy with an AD&D rider added to it.

If you’re unsure which type of coverage is better or whether you need both types, you may want to consult an expert for advice.

You may also want to consider another type of insurance that may better fit your family’s needs than AD&D coverage.

That’s disability insurance. You can learn more about long-term disability insurance here.

Consult an Expert

Whenever you’re considering insurance coverage, it helps to speak to an expert.

Experts can share their knowledge about the ins and outs of how each policy type works.

They can answer any questions you have and may be able to sell you a policy, too.

Most people consider insurance salespeople to be experts, and they should be.

The downside is their interests aren’t always aligned with yours.

Salespeople get commissions for selling policies. Generally, they get paid more for more expensive policies.

This can lead salespeople into selling you more coverage than you need to earn a larger commission check.

Honest salespeople truly recommend what’s best for your situation, but you have no way of knowing whether your salesperson is looking out for you or themselves.

Ask a financial pro

To help get around this issue, you could pay a fee-only fiduciary financial planner for advice.

Fiduciaries must give you advice that’s in your best interests. Fee-only fiduciaries charge for their advice and do not accept commissions.

While you do have to pay them for advice, the peace of mind of knowing you’re getting the best advice for your situation may be well worth it.

Then, you can purchase a policy from a salesperson and only get what you truly need.

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