• Harry N. Stout

Should You Buy ADD Insurance?


This post addresses a question we got from a subscriber. They asked if instead of buying life insurance, would be better to purchase Accidental Death and Dismemberment Insurance (ADD) instead? I will explain just what ADD coverage is and how it compares to life insurance in that both coverages offer protection for some of the same risks.


Overall, life insurance covers accidental death from any cause with few exceptions. ADD, on the other hand, only covers accidental death and some specified injuries (e.g., the loss of a limb) based on what the policy defines. ADD does not cover death by natural causes.


Background Information – The Differences

Life insurance provides financial protection for the insured in most cases of death (e.g., suicide within the two first years of the policy will likely not be covered) and will pay out if the insured dies by either accident or illness. ADD insurance only pays out in certain instances of death by accident, but not for natural causes or illness. ADD also provides benefits for certain specified losses.


Let me give you some examples. ADD policies usually pay a benefit for the loss of a limb, sight, hearing or speech, while a life insurance policy without an ADD rider does not. That is the major consideration for young people. They believe they are more likely to have such events take place than to die prematurely. A life insurance policy will pay for your death by drug overdose or suicide (after two years or owning the policy) while ADD will not. If you die from natural causes or an illness, life insurance will pay, but ADD will not. Please understand that AD&D insurance may have some exclusions on what it covers that are required by the state approving sale of the product.


Sales Practices

Some insurance professionals sell ADD as a substitute for life insurance, especially for young shoppers. They do this because young people are more likely to die from an accident that from other causes. This approach is subject to debate in that it does not fully consider all of life risks and benefits needed.


Life Insurance Policy ADD Riders

For someone who wants both life insurance and coverage for accidents (including the usual items of loss of limbs, sight, vision or speech), a policy rider may be a cost-effective option. An ADD rider is an addendum to a life insurance policy that provides additional coverage similar to those purchased with a stand-alone ADD policy. An ADD rider pays out an extra amount if death is due to an accident or related to other non-death losses specified in the rider.


Summary

Life insurance and ADD cover some but not all of the same risks. The key as part of your personal financial safety net, is to have insurance coverage in place considering all of your lifetime and not just the next few years. In my opinion, a life insurance policy with a robust ADD rider likely provides the fullest protection people need against certain of life’s risks. As with all insurance coverage, the consumer should work with their licensed financial professional to put the right coverage in place for their needs.

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