While AD&D insurance overlaps with life and disability insurance, it does not completely replace either. It provides some financial security, but the coverage is limited, so it isn't suitable for everyone.

What is AD&D insurance?

AD&D insurance combines two types of coverage: an accidental death policy, which pays out if you die in an accident, and a dismemberment policy, which pays out if you suffer a serious injury in an accident, such as losing a limb or becoming paralyzed. In the event of an accidental death, the beneficiary of your AD&D policy (such as your spouse) receives the money, and you receive it if you suffer one of the injuries specified in the policy.

The catch is that the death or injury must have occurred as a direct result of an accident. For example, if you have a heart attack while driving and cause a fatal car accident, your beneficiaries are unlikely to receive any compensation.

While AD&D insurance can provide financial security for you and your loved ones in the event of an accident, it will not pay out if you die as a result of natural causes or a terminal illness, so it is not a substitute for life insurance. It is also less comprehensive than disability insurance because it does not cover all injuries or disabilities.

Keep in mind that insurers frequently sell accidental death insurance without providing dismemberment coverage. These policies only pay out if you die and do not cover an accident in which you are seriously injured but still alive.

What does AD&D insurance cover?

Accidental death and dismemberment insurance typically covers unforeseeable events such as falls, traffic accidents, and homicides. If you are killed in an accident, your beneficiaries will most likely receive the full face value of your AD&D policy.

In terms of injuries, insurers differ in terms of covered dismemberment. They could include:

• Loss of a limb or finger.
• Loss of sight, speech or hearing.
• Paralysis.
• Workplace injuries caused by machinery.

The severity of your injury determines your payout. Insurers typically pay 25% to 50% of the benefit amount if you lose one body part, such as a finger, hand, foot, limb, or sight in one eye. If you lose two body parts, you will almost certainly receive the full payout. In the case of paralysis, most insurers provide a full payout for quadriplegia, which affects both arms and legs, and a 50% partial payout for paraplegia, which affects only the lower half of the body.

Some policies provide additional benefits for injuries or deaths caused by accidents while riding as a fare-paying passenger on a bus, train, plane, ferry, or taxi.

What isn’t covered by AD&D insurance?

Accidental injuries or deaths caused by the following are typically excluded from AD&D insurance policies:

• Drinking and driving.
• Natural causes.
• Physical illness, such as COVID-19.
• High-risk activities, such as skydiving.
• War.
• Suicide or attempted suicide.
• Drug overdose.

Most insurers consider a death to be a covered event if it occurs within three to twelve months of the accident.

When comparing policies, read the fine print to learn what is and isn't covered, as well as the time frame each insurer works with.

How to sign up for AD&D insurance

The most common way to obtain AD&D insurance is through your employer. Many employers include it as part of their benefit package, and you may be able to add your spouse or children to the policy.

Stand-alone policies can also be purchased directly from insurers or through a bank or credit union. Acceptance is guaranteed in some cases, which means you don't have to take a life insurance medical exam or answer health questions to qualify for coverage.

For a fee, some insurers will allow you to add an AD&D rider to your individual life insurance policy. If you have this rider, your life insurance beneficiaries will receive an additional lump-sum payout if you die in an accident, and you will receive the money if you are injured in a covered accident. This rider is also known as a "double indemnity" rider because it typically doubles the payout of your life insurance policy if you die in an accident.

The cost of AD&D insurance

AD&D insurance is less expensive than traditional term life insurance because it is limited to accidents.

According to Quotacy, a Minneapolis-based life insurance brokerage, a $200,000 AD&D policy would cost $13 per month for a 40-year-old applicant. A term life policy of the same value would cost around $15 per month.

AD&D insurance vs. life insurance

Life insurance provides broader coverage. It pays out if you die, whether from old age, an underlying health condition, or an accident, and some life insurance riders pay out if you are diagnosed with a chronic, critical, or terminal illness. Term life insurance can be inexpensive, particularly if you apply when you are young and healthy.

AD&D insurance only pays out in certain circumstances and does not cover natural causes or illnesses. However, unlike life insurance, it pays out if you lose a body part (or the use of it).

Key differences between AD&D insurance and life insurance

The big question: Is AD&D insurance worth it?

The most important thing to remember is that AD&D coverage supplements life insurance, which helps pay for expenses after you die, and disability insurance, which covers you if you are injured and unable to work. If you have dependents who would suffer financially if you died, your best bet is to first purchase life insurance. Look into disability insurance to protect your income if you become ill or injured and are unable to work.

If your employer provides AD&D insurance at no cost, it's worth taking advantage of that benefit. The same is true if your insurer allows you to supplement your life insurance policy with AD&D coverage.

Otherwise, you should only purchase an AD&D policy if you have a dangerous job or hobby and are prone to accidents as a result. In those cases, a separate policy may be worth the extra money.