Accidental death and dismemberment (AD&D) insurance policies are supposed to pay out if you are injured or die as the result of an accident. But what are the rules for getting money?
For example, will AD&D pay out if any of the following happen to you?
- Finger is severed but later reattached
- Murder or death by suicide
- Drunken or reckless behavior leads to injury or death
- Lose the ability to speak
- Become paralyzed
The answers may surprise you. Reading through the following scenarios can help you decide if it makes sense to purchase AD&D instead of traditional life insurance.
1. A severed and reattached finger
Some AD&D insurance companies do not cover any injury below the wrist, says Matthew Tassey, a Portland, Maine-based insurance broker and past chairman of the Life and Health Insurance Foundation for Education (LIFE), a consumer education non-profit.
AD&D is intended to cover an injury that represents a significant impairment. For some insurance companies, such impairment does not exist unless the loss is above the wrist, Tassey says.
Other insurers will pay out if you lose a thumb and a finger. But even here, the rules can be tricky.
Lynn Cannon, assistant vice president and director of accident lines at The Hartford Financial Services Group insurance company, says many AD&D policies require you to lose more than one finger on one hand in order to qualify for the full benefit payout, also called the “capital sum.”
In fact, it might surprise you to learn that policies frequently only pay out a benefit of 50 percent if you lose one limb. A full benefit is only paid out if you lose two limbs, or lose one limb and suffer a second loss (such as losing an eye).
If you do lose digits and they are later reattached and are able to fully function again, the original loss may still be payable, Cannon says. Rules vary from insurer to insurer.
The varying rules regarding the loss of a limb or digits underscore the importance of understanding your policy, Tassey says. Payment rules should be spelled out clearly in the insurance documentation, so if you have any questions, be sure to review your paperwork, he says.
2. Death by murder or suicide
If you are murdered, your AD&D insurance policy will be paid out, says Tassey. However, many policies will not cover losses for intentionally self-inflicted injury, such as a suicide or attempted suicide, he says.
AD&D insurance policies also don't usually pay for injuries sustained while committing or attempting to commit a felony, says Tassey.
"If you rob a bank and get shot by police, don't expect an AD&D payout for your injury," he says.
3. Death or injury due to drunkenness or other reckless behavior
Payout here depends on how the policy is written. Some AD&D policies are written with exclusions for dismemberment or death due to driving while intoxicated, says Cannon.
In some cases, you can opt to have the exclusion removed, although that could increase the cost of your policy, she says.
Tassey adds that accidents from other risky behaviors, whether they're legal or not, may also be excluded. If you're a parachutist or piloting a plane and get injured, the insurance likely wouldn't pay out, he says. However, there are AD&D policy options for workers, such as airline pilots, who perform these activities as part of their jobs.
If you have a hobby that could be considered dangerous, be sure to check with your insurer to see if it is covered, Tassey says.
4. Losing your ability to speak
Many policies offer a partial payout for loss of speech, says Cannon.
"There could be a 50 percent payout," she says.
A greater injury – such as losing your ability to speak and hear – could result in a 100 percent payout, Cannon says. If you receive a partial payout, but then suffer another injury or die as a direct result of the accident, AD&D insurance may make an additional payout, she says.
However, any disability or death would need to occur within a certain timeframe after the accident as described in the policy, or the insurance won't offer a payout, Cannon says. Many AD&D policies only cover a loss that occurs within 365 days of an accident, she says.
5. Paralysis due to accident
Accidental death and dismemberment insurance would generally pay out benefits if you become paralyzed, says Cannon.
In addition, the policy may pay out extra benefits if you used certain safety measures at the time of the accident, Cannon says. For example, if you were in an auto wreck and became paralyzed, but were wearing a seatbelt, a typical policy might pay out an extra $10,000 benefit for wearing the seatbelt, she says.