As you research and shop around for term life insurance and long term disability insurance (DI), you may be prompted to consider accidental death and dismemberment (AD&D) insurance.
AD&D is a subset of life insurance with some similarities to disability coverage. It’s not the same as owning a term life insurance or a DI policy, and it should not be considered an adequate replacement for either.
AD&D provides benefits if an insured is the victim of an accident that causes death, dismemberment or disability.
What is AD&D insurance?
Unlike term life insurance, an AD&D policy will not pay a death benefit if the insured dies from an illness. The same goes for a disability; if your disability isn’t directly caused by an accident, you won’t receive benefits from an AD&D policy.
The philosophy behind AD&D insurance is that having a benefit to account for sudden death or disability caused by an accident can help beneficiaries better cope financially.
Since accidents are unforeseen and unexpected, deaths and disabilities caused resulting from them are often more disruptive to the insured and his or her family.
AD&D is sometimes considered a viable substitute for regular life and disability insurance for two reasons.
First, it is less expensive than life and disability insurance. Second, since benefits are only paid due to accidents, there is no medical underwriting involved with AD&D insurance. In most cases, you are guaranteed AD&D coverage.
Why AD&D is not a substitute for life insurance
The main downside is the lack of coverage for health-related deaths and disabilities. Natural causes such as heart disease, cancer and respiratory ailments account for far more deaths than accidents.
Even if you’re impeccably healthy and believe an accident is the only way you would die, term life insurance is probably a better option.
As a physician, you know and maybe even experienced healthy patients who suddenly suffer heart attacks, strokes or the onset of cancer. Even the flu causes deaths every year to people who were otherwise in decent health. With term life insurance, you can be covered for almost any type of death, instead of being limited to accidents.
Plus, if you’re eventually diagnosed with certain ailments, you may not qualify later for life insurance coverage.
Why AD&D is not a substitute for DI
To qualify for a disability or dismemberment benefit, most AD&D policies stipulate that you must lose a body part, or the ability to hear, see or speak. And most policies only pay out a partial benefit for disabilities. For example, you may only receive a 50 percent payout of your policy’s death benefit amount if you lose your vision due to an accident.
That’s far less coverage than a physician's DI policy. If you have an own-occupation provision on a DI policy, you will receive benefits for any disability that prevents or limits you from practicing in your chosen field of medicine, even if the disability was caused by disease.
AD&D policies also do not cover all types of accidents. Death or disability caused by high-risk activities like sky diving are typically not covered. The same goes for deaths caused by war or military service, complications of surgery, and accidents in which the insured was impaired by alcohol or drugs.
Use AD&D to supplement life coverage
While you shouldn’t consider AD&D as a substitute for term life insurance, it can serve as a supplement to your coverage. This is especially true if you have a family or others who depend on your income.
The value of having a larger death benefit is that younger people are more likely to die in an accident. Therefore, your dependents will likely have to live longer without your income than they would if you die later of natural causes.
Many employers and professional associations offer group AD&D coverage, and there are standalone individual policies available as well.
Another option, if you have not already purchased life insurance and/or disability coverage, is to purchase accidental coverage as a rider.
You can attach an accidental death benefit rider to a term life insurance policy. This will provide your beneficiaries an additional death benefit if your death is caused by an accident, as defined in the contract.
Accidental death and dismemberment riders on physician disability policies also provide an additional benefit if you die or suffer a severe injury due to an accident.