What is accidental death insurance?

If you’re researching insurance to help protect your loved ones financially – then kudos to you. It’s the right move. A life insurance policy can help ensure that your loved ones can continue paying expenses like mortgage payments, child care and other day-to-day bills.

But what kind of coverage do you need? If you’re young and healthy, you might think that the largest risk to your life is the possibility of a fatal accident. You’re thinking car crashes, work injuries, fire. In that case, accidental death insurance may sound appealing. It’s accidents you’re concerned about, so why not insure directly against them? Especially if it means you won’t have to schedule a medical exam.

An accidental death insurance policy comes with benefits and drawbacks. The biggest drawback is that it leaves you exposed to a much greater chance that your loved ones won’t have a claim. Only 5.4 percent of all deaths in the U.S. are from accidental causes. If you pass away from a cause in the other 94.6 percent? Your accidental death insurance policy won’t benefit your family.

So, how do you make the decision? We get it, it’s a little overwhelming. Luckily, finding the right policy for you and your family doesn’t need to be complicated.

As you start to search for life insurance, two common types of coverage you’ll come across are accidental death insurance and term life insurance. These two products both provide a payout to your beneficiary if you were to die — but that’s where the similarities end.

Here’s what you need to know:

Accidental death insurance versus life insurance

Accidental death insurance, also known as accidental death and dismemberment or AD&D insurance, is sometimes considered as an alternative to term life insurance. Many insurance companies and brokers offer both types of coverage.

As the name implies, accidental death insurance provides a lump sum payout (called a death benefit) to your loved ones if you passed away from an accident, such as a car crash, a workplace injury or a homicide. Death from illness or natural causes is not covered under this type of insurance.

The part of this policy that offers dismemberment coverage may provide some type of living benefit if the policyholder is severely injured, paralyzed or loses a limb, but not all accidental death policies include this provision.

It’s also important to note that many accidental death policies are generally limited to an amount of up to $500,000.

By comparison, term life insurance provides a payout to your beneficiary if you were to die anytime within a particular time frame — typically 10, 15, 20, or 30 years. Whether you pass away from an accident or illness does not matter with this type of coverage, which makes it a more popular, well-recommended choice. Term life insurance is not capped at $500,000 in coverage benefits.

The limitations on when a death benefit is paid can leave your family at financial risk, so you should understand the fine print.

Cost of accidental death insurance versus term life insurance

At the end of the day, cost matters. And fortunately, both accidental death insurance coverage and term life insurance coverage are usually affordable (and usually quite a bit more affordable than permanent life insurance) — it’s just a matter of how much protection you’re getting for the money you’re paying.

Let’s do some cost comparisons:

Term life insurance

A 30-year old woman in excellent health could qualify for a 30-year, $500,000 Haven Term policy, issued by MassMutual, for $35.40 per month. That policy would pay out to her beneficiaries if she passed away from an accident as well as an illness or health issue while accidental death insurance will only pay out after an accident.

Accidental death insurance

The same woman could buy a $500,000 accidental death policy, which would cover her until she’s 60 years old, starting at $30 per month, according to insurance broker Fabric. Limitations would be that if, during that 30-year timeframe, she passed away from an illness or health issue, the accidental death benefit would not be paid out to her beneficiaries.

What does accidental death insurance cover?

Like with any other type of insurance coverage, you shouldn’t buy a policy until you understand what limitations may exist. So, what does accidental death insurance cover? Loss of life resulting from accidents involving cars, bikes, work-related machinery, falls, suffocation, choking, drowning, and fires generally are covered by an accidental death and dismemberment policy.

Some policies also cover dismemberment. That means you or your beneficiaries can receive a payout for loss of sight, speech, hearing, or a limb. This is not a disability income insurance policy, though, which can replace a portion of your income if you become unable to work for an extended period of time.

Accidental death and dismemberment policies generally do not cover a fatal accidental injury caused by surgery, mental or physical illness.

Typically, the coverage is in effect until somewhere between the ages of 60 to 80 — but this can vary by insurance company or broker and even by state.

AD&D’s exclusion of illness and natural causes cannot be overemphasized and must be thoughtfully considered, as it means the most likely cause of death for most individuals isn’t a covered loss.

Let’s let some morbid numbers do the talking:

“When referring to accidental death insurance, my father used to always say, ‘I don’t want to gamble on how I’ll die,’” says Matt Wolf, Haven Life’s head of product and analytics.

When is accidental death the right choice?

Accidental death insurance is simple to purchase because it doesn’t require any medical underwriting. An accidental death policy may be a better fit than term life insurance if you have been declined life insurance due to health reasons. Cost-conscious consumers also may prefer the generally lower premiums and face amounts of accidental death insurance compared to term life insurance even though accidental death policies will only pay out after an accident.

The best thing you can do when deciding if AD&D is the right choice is to cost compare with term life insurance and make sure you understand how much coverage you’re getting, how much you’re paying for that coverage, when the coverage ends, and what exclusions are in the policy. Doing so will help ensure you’re getting the best value for you and, more importantly, your family.

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How does term life insurance work?

A term life insurance policy provides a death benefit in a specific amount (called the policy face value) if the policyholder passes away within a specified term length. Life insurance buyers can choose among varying term lengths and face amounts in order to purchase the right coverage to fit their family’s needs. An online life insurance calculator offers a simple way to pick the right coverage.

With term life insurance, there are few exclusions on whether a policy will be paid out — usually it’s limited to suicide within the first two years or intentionally not disclosing material information in the application process.

For many people, medically underwritten term life insurance is a good value. Premiums are usually affordable, and you have coverage during the years your family needs it most — until your mortgage is paid off, your spouse or domestic partner is retired, or your financially dependent children are on their own.

Buying quality term life insurance has become much easier recently thanks to modern technology. You can apply online for a Haven Term policy and receive an instant decision on coverage eligibility. If a medical exam is needed, you’ll be notified on the spot, and, with Haven Life, you have 90 days to take it. There’s no reason to fear the medical exam either — when an exam is needed, most Haven Life customers find it to be a simple process.

Additionally, when choosing a company to financially protect your family, make sure you check their financial ratings in your researching process. When a company issuesa policy, it’s a commitment to pay out a death benefit to your loved ones over the next 10 to 30 years if you were to pass away. Life insurance companies receive ratings from independent agencies based on their assessment of the company’s financial strength and claims-paying ability. The higher the rating, the higher the rating agency’s assessment that the insurer will be around to pay the policy’s benefit.

Find your right choice: Accidental death or term life insurance

When purchasing insurance to financially protect your spouse and children from the worst case scenario, you, of course, want the comfort of knowing that there aren’t significant contingencies on how you pass away.

Accidental death insurance could be a good option if you are unable to qualify for medical underwriting under a life insurance policy. It may also be a good option if it is the only life insurance coverage you can afford. However, if you are healthy and have an uncomplicated medical history, then you’ll usually get a better value with a medically underwritten term life insurance policy.

Life insurance is extremely valuable to your family and one of the most thoughtful gifts you can provide your loved ones. For many people, term life insurance is a better option than accidental death insurance to help financially protect your family because you are covered regardless of how you pass away.

Chelsea Brennan is the founder of Smart Money Mamas, a personal finance blog that focuses on family finance, investing, and reducing money stress. Chelsea is an ex-hedge fund investor whose work has appeared in a wide array of publications, including Forbes, Business Insider, and more.

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Real Rate is based on your application and third party data obtained during underwriting.

Haven Term is a Term Life Insurance Policy (DTC 042017 [OK1] and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. Policy and rider form numbers and features may vary by state and may not be available in all states. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Our Agency license number in California is OK71922 and in Arkansas, 100139527.

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