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August 15, 2020

Comparing Term Life Insurance vs. Accidental Death and Dismemberment (AD&D)

Are you the breadwinner in your family? What happens to your family if you are severely injured or killed? Will they be left financially stable?

Life insurance policies can give you the peace of mind that your family will be okay if something happens to you. However, not all policies are the same.

Here’s the Gist

  • Term life insurance will pay out in case of your death in almost all cases
  • AD&D may cover the few instances that regular life insurance doesn’t
  • Individuals who can’t get life insurance because of a medical condition can usually still get AD&D

Which should you choose? Let’s look at term life insurance vs. accidental death and dismemberment (AD&D) coverage and find out when you would choose one or the other, or both.

What Is Term Life Insurance?

Term life insurance is pretty simple. You pay a monthly premium for a set term, usually between 10 and 30 years. If you die within that time period from virtually any cause, the policy will pay out the agreed-upon amount to your beneficiaries. A common exception is death by suicide and usually only within the first two years.

It is common for people to purchase this type of life insurance right before or when their children are young. Term life insurance gives you the peace of mind that if something happens to you before your kids are grown, your spouse or other designated caregiver will have the financial support necessary to finish raising them.

Premiums are inexpensive because it’s pure insurance with no investment elements like whole life or universal life. It’seven more affordable when you purchase coverage when you’re younger and healthier, and your family is basically guaranteed a payout in the event of your death.

Once the term ends, so does the possibility of benefit. You can choose to renew the policy, but it should be no surprise that the monthly premium price will increase based on your now older age and higher likelihood of death during the term. Even with that in mind though, it’s cost-effective and a great choice for families during the years when losing the primary breadwinner would be most difficult.

Why then, are there AD&D policies? Does term life cover accidental death? Not always.

What Is Accidental Death & Dismemberment Insurance?

What happens if you are severely injured, but don’t die? Does term life insurance cover dismemberment? Term life only pays out upon your death.

But you may not be able to go back to work. On top of that, you may have ongoing medical costs that further add to the financial strain.

This is where accidental death and dismemberment(AD&D) insurance comes in. If you are injured and lose a piece of your body or are killed in an accident you or your beneficiaries can receive a payout from the policy.

This type of policy, for example, might be beneficial for millennials or other younger individuals who love to participate in extreme sports. Just make sure that whatever policy you choose covers accidents due to your chosen sport.

Having AD&D coverage doesn’t give you free rein to grab life by the horns and go extreme, however. Companies include a list of exclusions for accidents that happen when you are engaged in risky or criminal behavior. They can vary by company so be sure to check your policy.

Here are a few common AD&D exclusions:
  • Death by suicide
  • Death by drug overdose
  • Death when participating in a riot
  • Accidents during extreme sports like skydiving
  • Accidents that occur while engaged in criminal behavior
  • Car accidents in which the insured is intoxicated
  • Accidents suffered by professional athletes during a game

Because accidental deaths of this type are rare, AD&D insurance is extremely affordable – even cheaper than term life insurance as a standalone policy. There are a few different options for coverage. The insurance can come as a individual policy, as a rider on a life insurance policy, or through your employer.

A medical exam is not required to take out an AD&D policy. Thus, people who are not able to get regular life insurance because of a medical condition may still qualify. However, death from an illness is not covered under this type of policy.

While a term life policy is usually paid out in its entirety, AD&D benefits may be paid out on a different schedule according to the severity of the injury. For example, take a look at the table of sample benefits below.

Example of Accidental  Loss Suffered and Percentage of benefits that will be paid

As you can see, payouts are made based on the severity of the injury. Though losing any body part or sense is tragic, some are more troublesome than others.

It’s important to realize that AD&D is not a good substitute for life insurance and shouldn’t be used that way. However, it can give people a calming peace of mind to know that they are covered for any eventuality.

Term Life vs. Accidental Death and Dismemberment (AD&D)

Now that you have a basic idea of what each type of insurance entails, let’s compare the two.

Which Option Is Right for You?

The current situation with COVID-19 has us all considering our mortality a little more right now. Even younger people are more likely to consider what will happen to their families if something happens to them.

Thankfully, COVID isn’t impacting life insurance too much, except perhaps for the elderly. However, elderly folks already pay a higher premium because their risk of dying is already higher.

For everyone else, the life insurance scene is still basically the same. Even if you are young and healthy, term life insurance is a good choice, especially if you have children.

AD&D, either as a standalone policy or as a rider on a life insurance policy is also a good idea to cover scenarios that could impact your ongoing well being outside of death. If you love flying down the ski slopes or exploring the bottom of the sea through scuba diving, AD&D may be a good choice. Some term life insurance policies don’t cover death from these types of activities, though the right AD&D policy will.

What if you don’t have young children or dependents? Well, ask yourself this, if you lose a leg or an arm, wouldn’t an insurance payout while you adapt to your new normal be handy? No doubt you’ll have medical and physical therapy expenses, not to mention it may be a few weeks or months before you can return to work.

A little bit of financial security during a rough time can be a huge relief.

Choosing Your Life Insurance Policy

Still unsure of which policy to choose? Don’t hesitate to contact us for life insurance policies in Canada.

We are happy to help you decide which is the right choice for your situation. No two people will have the same exact insurance needs, which is why we listen to your needs and help you choose the best option for you, and it can be done fully digitally if you prefer.