AD&D Insurance: No Good, No Bad, Just Ugly

by Nora Dunn on 27 November 2007 20 comments
Photo: Striatic

Accidental Death And Dismemberment insurance. Wow – doesn’t that sound just lovely? I mean, at least Life insurance has a euphemistic name (they call it “Life” insurance, not “death” insurance, which is really a little more apt). Disability, Critical Illness, and Long Term Care, although accurate in name, aren’t quite as ugly in description.

But Accidental Death & Dismemberment (thankfully rolling off the tongue easily by more commonly being known as AD&D) is just ugly, and in more ways than one.

 

The Basics

AD&D is often offered as a rider on your existing life or disability insurance policy. Workplace health insurance programs also often toss this type of coverage in either as an option or a fully funded inclusion. Some credit card companies will also offer AD&D to cover off your balance in the event of a claim.

One of the first things you’ll notice about AD&D is that it is dirt cheap. This is automatically an attractive option for those feeling underinsured. (Please allow me to debunk this later).

 

 

Definitions

Accidental Death

As you may have predicted, you (or more aptly your beneficiaries) receive a benefit if you die as a result of an accident. The stipulations around this accident differ from carrier to carrier, but generally you must die as a direct result of an accident, and within three months of said accident.

Surgery doesn’t count (even if it was the surgeon who made a boo-boo – which is technically an accident if you ask me), nor do infections, mental or physical illnesses, or drug overdoses (talk about “oops”).

Dismemberment

As for the “dismemberment” part of the insurance, you will receive varying benefit payments if you are dismembered. It usually involves the loss of a limb or eye. If you lose two limbs and/or sight in both eyes, the benefit increases. So if you lose two fingers on your right hand, and your left foot up to the shin, in combination with getting poked in the eye (the left pays more than the right), you can receive up to five times your initial benefit. I am, of course, joking, but the definitions of dismemberment are almost that cryptic to decipher.

 

Beefs With AD&D

I have a lot of beefs with AD&D. My main concern is that it seems like more of a lottery than an insurance policy. Insurance is supposed to pay out money if something happens to you or your family that could result in financial duress. But if you can’t count on that insurance to pay out, your premiums may as well be flushed down the toilet.

If you need life insurance, get life insurance.

If you die of an illness, AD&D won’t pay out. But your survivors (who may depend on your for your income, cash flow for debts, or putting the kids through school) don’t need the money any less than if you die because of an accident.

If you need disability or critical illness or long term care insurance, get that.

Again, if you are dismembered, it doesn’t matter if you lose one hand or both, you will probably be disabled. And you’ll need to have insurance to cover your loss of income and additional medical expenses. Do you need double the benefit because you lost a hand AND a foot (or conversely half the benefit if you only lose one limb)? I think not. Not to mention the fact that there is a myriad of other debilitating things that can result in a financially crippling disability that won’t even come close to the radar of AD&D insurance.

 

C’mon. It’s Cheap. So why not?

I’ve argued with many a client over the years about the practicality of AD&D. Some argue that it’s cheap and easy to get, so why not go with the extra coverage? Who knows – it may end up paying out a ton of cash. To these people I advise to buy a lottery ticket if they’re willing to give up money for a remote chance of getting a bunch back. At least dreaming about what to do with lottery winnings is a little more inspirational and positive than dreaming of what to do with an AD&D payment.

Some budget-minded people prefer AD&D because of its low cost. And I can truly appreciate the idea of having some coverage for a low payment rather than none at all because of prohibitive costs of other insurance policies. To these folks I advise some deep soul-searching. Is money really needed in the event of a death in the family? If the answer is yes, having AD&D may do more damage than good. You are taking what little cash you have now and spending it on something that statistically won’t pay out a dime when you need it most. Either use that cash for food and things you need while alive, or re-arrange your budget to find the extra money for a full life insurance policy. Please.

 

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Linsey Knerl's picture

Nora,

I can totally understand where you are coming from. I agree that it is very important to have a reliable and comprehensive life insurance plan. It is a necessity these days (especially with dependents.) I would have to add, however, that for some folks, AD&D may be a good idea. I come from a long line of farmers (an occupation that in some years statistically sees more deaths and injuries than coal miners.) According to Accident Facts published in 1990 by the National Safety Council, farm accidents and other work-related health problems claimed as many as 1300 lives and caused 120,000 injuries a year, most of which are preventable. A large majority of the injuries (more than half) involve a dismemberment of some type. There are many farmers with prosthetics, and their conventional life insurance wouldn't have been able to assist much. (And getting on disability can take a very, very long time in some states (plus require the assitance of a lawyer in many cases.)

I would say that for most paper-pushers, the need for AD&D is wishy-washy. But for where I live, it has much better payout odds than the Nebraska lottery.

Awesome topic, Nora. I love hearing about insurance (I'm kind of a nut that way..)

:)

 

Guest's picture

good post,

I think from reading your interesting post, its clear that before taking out any form of insurance (especially life insurance in this case).....a considerable amount of research will need to be done

Nora Dunn's picture

@Linsey - You have a great point that I hadn't considered, and you obviously know that market well! For a small cost, AD&D just may provide some relief for farmers (and maybe other vocations?) who won't see that assistance in many other ways.

@Cash Advisor - Absolutely do your research! Even better - if you can, find an insurance agent who you like and trust and who can give you the dirt. I know we are always suspicious of being upsold or cross-sold or being pitched to by somebody who can only think of commissions, but believe it or not there are some insurance agents out there who actually work on the basis that the client comes first! Do your due dilligence, and go with your gut in the end.  

Guest's picture
Guest

ok. your ad&d explaination is totally correct. why not get aflac? it pays cash if you or a family member has an accident or illness and remain living!!!

Guest's picture
Guest

This company totally sucks!! DO NOT, repeat DO NOT take their policy. It may sound good until they start gouging your for more than you were told your policy would be.

Guest's picture
Guest

Nora, your negative critique of AD&D Insurance failed to consider
the following:

Those who are self-employed, over age 55 or 60 who
believe they are under-insured and travel by auto,
say, 20-30K miles per year. At that age, a $500/yr
premium may get you $20K extra in benefits but it
will buy $500K in AD&D Insurance. For someone in
excellent health and fortunate genes, which is the
better deal?

Nora Dunn's picture

@Guest - You bring up an interesting point, to which I don't have a full answer. My gut feeling is still that you could spend your hard-earned money on premiums, only to find that when push comes to shove you won't get a pay-out. All you need is to be in a car accident (which I'm gathering is what you are perceiving as the big risk in this scenario), become hospitalized, and die three months PLUS ONE DAY after the accident. Whamo - no money.

That's just one of a myriad of ways that an AD&D policy will let you down - even given the above scenario. If you really think you need $500k of insurance, then it would be prudent to make sure you truly have the coverage.

However if you like the idea of the payout more than actually NEEDING it, then that's another matter, and you can decide if it's worth the cost of the premiums for the potential of financial gain in the event of a disaster.

Guest's picture
Abdullah M. Saaba

Please send me a copy of my policy
Please send to
Mr Abdullah M. Saaba
1224 Ellsworth Street
Philadelphia, PA 19147

Guest's picture
Hadley

I think whether or not you should buy insurance depends on your personal situation, and whether there is a true need for the insurance.

As Linsey mentioned, you may have a great need for accidental death and dismemberment insurance if you are a farmer. Also, take a look at your hobbies, as high risk hobbies like bungee jumping, sky diving, base jumping, and other high risk acitivites may present a greater chance of you being injured or dying.

Although some policies have restrictions and esclusions, it may be a good idea to consider accidental death insurance if your lifestyle, occupation, and hobbies present higher than average risks.

Guest's picture
Tina

Nora, thank you for the information.  I have ADD and going to cancel it now that I have a UL policy.  Is it a dream if I request for the premiums refunded?  Thanks!   

Nora Dunn's picture
Nora Dunn

@Hadley - Absolutely: every situation is different, as is just about every policy. So read the fine print and decide for yourself if it gives you what you need.

 

@Tina - It's always worth a shot to ask if there are any premiums refundable to you. If you paid for a year in advance, they'll often refund you the portion of the year that you haven't used up. It never hurts to ask!

Guest's picture

Great article as always...
Though insurance is an absolute need, I think it is just proper to invest on a more reliable plan that will provide an extensive benefits and financial support to our families. Spending less doesn't t always satisfy a justifiable means. AD&D insurance is a total expense with a little of returns I may say. If you want to have financial security then why gamble with a lesser chance, if there are more precise deals anyway. I agree that its just like a lottery game where the chance at stake are a lot on the side of impossibility.

Guest's picture
Guest

Accidents are the leading cause of death for people between the ages of 1 and 41. Adults under 41 typically have a lot of expenses (mortgage, car payments, child care, college funds) that they don't anticipate having at the end of their life. Since life insurance is much more expensive than AD&D, it makes sense have life insurance coverage and then supplement it with AD&D to keep your family financially prepared if you do die from an accident, and leave behind all the expenses you planned to pay off before your death.

Guest's picture
MP

I was thinking about getting AD&D because I am a computer programmer and the dismemberment part would be helpful. If I lose a finger or a hand and can't type, I'm out of a job and our sole source of income.

Guest's picture
Guest

I had a life policy at work that included AD&D insurance. Then I had an accident and lost an eye, resulting in a large payout. I can still work -wouldnt count as disabled, but not as much and probably not as long, plus I need to get help for some things. All in all, the insurance basically means I don't have a financial loss to go along with the non-financial loss. Seems like a good use for insurance to me. I didn't even know I had the policy and probably wouldn't have paid extra for it, but it worked, they paid out like they were supposed to.

Guest's picture
Living Proof

Nora,

This is a something that people need to really think about when selecting their annual health benefits. My wife added it to her account where she worked (in the insurance industry) for both of us.
I asked her the same thing, "why not just get regular insurance?". She said since we are both relatively young (mid 30's) it would be more likely that we die or were dismembered in an accident than of natural causes.
Unfortunately this was the case. She passed away 12 years ago this month after having an accident in our home.

Nora Dunn's picture
Nora Dunn

I'm so sorry for your loss. Did the AD&D insurance end up paying out? Did it help at all?
I think many of us don't understand what we would do with a chunk of money like an insurance payout, but I think there are many expenses that we also don't anticipate. If you would like to weigh in with your two cents, I'm sure we would all appreciate it.

Guest's picture
Hrishi

I share this viewpoint as well. For people in their 30s who are healthy, chances are high that your death was because of an accident (say car accident) rather than of natural causes. Given this, why should I not prefer AD&D over life insurance? To me, the fact that AD&D also covers dismemberment is actually a plus over life insurance.

Guest's picture
Guest

Nora, I share the same concerns with AD&D, actually with all insurance really - We pay but they rarely ever will cover, or pay out what you think they should.

Since ones greatest concern is to insure their family is protected after their death, it is very alarming to think you would have purchased a policy that will never pay out.

Your article seems to suggest that buying AD&D is simply an act of false security because the likelihood of a payout is minimal. I would like to understand this point of view a bit more.

Is this because consumers do not conduct their due dilligence and think the policy will pay out for things it should not?

Or is this because the insurance companies are scheisters who look and often find a reason NOT to pay out?

Nora Dunn's picture
Nora Dunn

Hi Guest,
Although yes - across the board insurance companies will work hard to NOT pay out, my concerns are with AD&D specifically, since payout is only contingent on a random number of incidents that could happen.
If you need life insurance, then get life insurance. Don't get AD&D - which only pays if you die in certain ways. Your family's financial needs after your death will be the same, regardless of if you are hit by a bus or die of cancer.