Life Insurance vs Accidental Death and Dismemberment Insurance

Many people who are shopping for financial planning tools like life insurance assume that Accidental Death and Dismemberment plans are the exact same thing as a traditional life plan.

Accidental Death and Dismemberment insurance, which is often transcribed as AD&D, is a supplemental insurance plan that is designed to help individuals pay for final expenses and other costs associated with an unexpected death.

While it does sound to be the same thing as a term or permanent life insurance policy, the two are very different. Failing to learn about the differences can seriously affect you if you assume that your AD&D plan will pay in situations that are excluded in the terms of the plan.

If you are not familiar with the similarities and differences of life insurance and AD&D plans, now is the time to learn. Read this Life Insurance vs. AD&D consumer guide, and get all of the details you cannot find compiled together somewhere else.

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What are accidental death and dismemberment plans?

Once you learn the basics of AD&D insurance you will be able to spot the major difference between this supplemental plan and true life policy.

Accidental Death plans are relatively easy to understand because they are so basic.

Basically, it is a very limited form of life insurance that will pay a benefit to listed beneficiaries if you are deemed disabled or if you pass away because of a covered event.

Not all AD&D policies are alike, and you will need to review the paperwork before signing up for a plan to find out how much the benefit is for death, loss of limbs or other disabilities and how the money will be paid.

Most plans pay a lump sum for a death claim or if both limbs are lost. The plan may have smaller payouts depending on the type of dismemberment and this payout schedule will be written out for you.

Companies that Sell Accidental Death and Dismemberment Insurance

Now that you know what AD&D plans are likely to cover, the next step is finding a place where you can buy this limited type of coverage.

Most consumers know that they can pick up the phone and call a life insurance agency to receive quotes for standard life insurance plans, but not all life carriers offer a form of AD&D plan.

In fact, in most cases people will purchase this protection as an added benefit to another plan or to bank account. You may be able to buy coverage with group providers through work, your credit card issuer, mortgagee, bank, auto insurance policy or other organization.

It is very important to read the terms and the conditions of the plan because each provider has their own terms and their own payout schedules.

What is standard life insurance?

A standard life insurance plan is a much less limited type of coverage that will also pay beneficiaries the death benefit that you are paying for if the named insured dies.

While both AD&D plans and standard term and permanent life insurance plans pay a death benefit to a listed beneficiary, this is where the similarities end.

Understanding standard life insurance is not quite as easy because you will need to learn the differences between term and permanent insurance plans. AD&D policies will only pay for injuries or death caused by accidents and does not apply if the policyholder were to fall ill and die.

Both term and permanent life insurance will payout for accidental death or death as the result of an illness or condition, but how long coverage is provided and whether or not the death benefit will remain level will depend on the plan that you choose.

Here is some basic information that can help you gain better understanding of how permanent and term life can differ from one another:

Term Life Insurance Basics

Term life insurance is the simplest type of standard life insurance that you can buy.

It will only pay out death benefits if the named insured dies within the term that is selected.

Terms may last 1, 5, 10, 20, or even 30 years in length.

You may be able to buy a level renewable term, where the premiums remain the same for the entire period of the plan.

These plans can renew at the end if you can medically qualify for coverage when the duration of the original policy is up.

You can also buy an annual term plan, which has rising premiums that will go up once every year at the policy anniversary date.

While these plans are much more expensive than the level term policy, they are a good choice for the right consumer.

Consumers who buy annual terms are those who need a policy that is not underwritten, does not require a medical exam, and who need the policy to be issued quickly.

Most consumers will buy term life to protect their families or to meet their temporary long-term financial obligations. You can use the money to payoff debt, pay for dependent costs, or replace income no matter what the cause of death is.

Some plans have riders where you can use a portion of your death benefit while you are living when you are critically ill.

Permanent Life Insurance Basics

Term insurance is more complex than AD&D insurance because of the different options that are available, but permanent life is much more complex than the standard term life plan. Permanent life insurance plans are in force for the remainder of the policyholders life.

The plans have both a pure life (term) component, and an investment component that will be the feature that allows the plan to accumulate cash value and to offset the rising cost of insurance as you age.

There are four types of permanent insurance: Universal Life, Whole Life, Variable Life, and Variable Universal Life. The structure of each plan is different, and Universal life structures tend to be more flexible that traditional whole life plans.

Death benefits may stay level, but some plans will have a rising death benefit that goes up as cash accounts earn interest or dividends.

Most individuals will buy permanent insurance to meet financial needs that will never go away. You would not buy permanent insurance to payoff a mortgage that will be paid off in 20 years, but you would to pay for estate taxes or for retirement income replacement.

Many use these policies as an opportunity to reduce their tax obligations or as a way to save for future withdrawals for large purchases. This is why permanent insurance can get very complex unless take the time to do your homework and learn the complexities of the plan.

Who sells standard life insurance?

There are several different providers of life insurance. Some are leaders in the marketplace and others are less well-known. Licensed life insurance companies may only sell in the states where they have their license.

You can find individual insurers through the Internet or your credit union or bank, and you can find group insurers through your work and other professional associations you are a part of.

Life insurers that sell standard insurance are constantly being rated, and this makes it much easier to qualify an insurer that sells insurance.

Agencies like A.M. Best will rank the credit worthiness and financial strength of an insurer so that you make the decision to buy long-term coverage from a company that will be around long term.

You can also rank the insurer by reviewing the complaint index and finding out if their are trends that could indicate that the insurer does not pay out claims quickly.

You cannot find providers of AD&D insurance in the complaint index through the National Association of Insurance Commissioners Consumer Information Source page.

What are the restrictions that exist for each type of plan?

With every insurance policy comes restrictions.

You may understand that AD&D plans only pay out when the injury or death occurs in an accident, but there are restrictions that go beyond this.

The fine print of most plans will say that death or dismemberment must happen within three months following the accident for benefits to be paid.

There may also be some exclusions for specific accidents that happened because of mental illness, an external wound, treatment of a physical illness, suicide, intentional injury, war, driving under the influence, or drugs.

The restrictions are not are strict when you have standard insurance.

Most life plans only exclude claims when they are filed within two years of issuance and there is a suicide or a misrepresentation on the application.

Now that you know the differences, you need to review the costs. AD&D policies will cost much less than life plans and the process to apply is much easier because your health status is not in question.

Be sure to our FREE price comparison tool to compare the cost of insurance, and find the most affordable insurance plan.