AD&D Insurance: No Good, No Bad, Just Ugly
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.
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).
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”).
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.
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.