Life Insurance vs. Accidental Death Insurance Explained

Knowing the difference between these two types of Insurance could change your future. How will this knowledge change your future? Read on and you will find out the difference between Life Insurance and Accidental Death Insurance. The very names express a drastic difference between these two types of insurance. Those who are getting into or who are in their golden years would benefit immensely in knowing the difference between these two insurance types. No one likes to talk about death but the differences must be made clear.

You do not want your loved ones to be left with the responsibility of paying for funeral costs and costs related to unpaid bills. There are some major differences between the two types of insurance. In this article, you will learn the major attributes of these two different types of insurance.

The Illusion that both are the Same

In today’s world there is a sad but true misconception among the populace that once an accidental death and dismemberment policy is activated it acts like an all inconclusive life insurance policy. This could not be further from the truth. For one thing this type of insurance policy makes limited payouts and quick payouts in comparison to life insurance policies.

In a 2010 report of the National Center for Health Statistics, it states that accidents are the number 5 reason of deaths behind other causes. There were 129, 859 deaths that were reported as accidents that year. This accounted for 5% of the total deaths listed that year. These types of insurance policies will yield fewer payouts than life insurance policies will.

Unfortunately, agents have sold these accident death and dismemberment policies giving the impression to clients that it is a complete life insurance policy. They have not educated their clients to the realities of this policy. In fact, these kinds of policies are not even life insurance policies but they are casualty insurance policies that pay out when the insured dies from a non-work related accident or they become disabled.

Term Life Insurance Polices

There are actually two different types of life insurance that can be purchased. They are term life insurance and permanent life insurance. Term life insurance is a temporary life insurance which can be purchased for different terms. Insurance companies will generally sell these policies in terms of 10, 15, 20, and 30 year term policies. Some insurance companies will sell 5 year term life insurance policies. They are by nature policies that will only pay out for a temporary term.

These are the cheapest types of life insurance policies that a person can buy. You need to shop around to find the best term life insurance policy for your family and needs. Within the term life insurance policies you may purchase a level life insurance policy or a renewable life insurance policy. The level life insurance policy will maintain the same premium cost for the life of the policy.

The renewable life insurance policy works differently than the level insurance policy. This policy will renew every year after the term is up. But there is a catch because the price of the policy will increase every year after the term year and it will also increase in cost as the holder gets older.

Permanent Life Insurance Policies

As the name says these are life insurance policies that will last permanently. But there are components to this type of life insurance policy. They are whole life, universal life, index universal life, and universal variable life insurance policies.

Whole life insurance will cover the individual until age 100 and it is the easiest policy to understand. The universal life policy will also cover you for the rest of your life but it offers you some flexibility during its term. You can change the dates of your premiums or how much you want to pay for the premiums. You are even allowed to change the death date benefit if things change for you in time.

Index and variable life insurance policies are the same in flexibility and lifelong coverage as the traditional life insurance policy but they are different when it comes to investment options. Index universal life insurance has an easier investment option of the two. It has a floor and it has outside parties watching your investment. It is an easily manageable investment for the holder. When it is invested for the cash value in your stock of choice it is not a risky investment. You will have people to manage it for you.

On the other hand, a variable universal life insurance policy is harder to monitor as an investment tool. This is because you have to watch the investment yourself and manage the policy. It does not have a floor either. It is a higher risk investment than the index universal life insurance policy will be. If the holder is a busy person than this investment is not for them. It will just take up too much time to monitor this investment. The holder may also lose money on the investment because there is no floor on this investment.

Permanent type life insurance policies can grow in cash value and it will accumulate in cash value. You can access the funds in the investment by borrowing off the life insurance policy itself.

Good and Bad Points of Life Insurance

We need to understand that there are pros and cons to life insurance. The holder can invest the permanent life insurance policy and the cash value will increase over time. The holder can borrow against the investment or withdraw the cash amount before death. The cash value of the variable and index universal policies can be invested in part. Permanent life insurance you will have coverage for the rest of your natural life and the coverage will not expire like it would with term life insurance. Term life insurance is the cheapest life insurance on the market.

A drawback to life insurance is that if you borrow some of the money from the policy before you die and you do not pay it back. This amount will be removed by the insurance company upon your death from the policy. The beneficiaries will get the remaining amount. Permanent universal life insurance policies will give a minimal return on the investment and it is hard to understand.

What about Accidental Death Insurance 

In 2015, accidental deaths accounted for 5.4% of all deaths. Certain age groups had a much higher accidental death rate though. For example people ages 24-34 had a 38.4% rate and people ages 15 to 24 had a rate of 41%. Also, Centers for Disease Control and Prevention (CDC) announced that accidental death rose to 169,936 in 2017, a 5.3% increase from 2016. One of the most famous cases of an early accidental death in 2016 was Anton Yelchin. He played Chekov in the latest “Star Trek” movies. He died in a freak car accident on June, 19, 2016 at the age of 27. Despite these high accidental death rates does this mean Accidental death Insurance is worth purchasing?

Accidental death and dismemberment policies or (AD&D) can be bought as standalone policies or as part of a life insurance package. But they are still different from life insurance policies. AD&D policies will pay out under certain schedules. In other words, the pay outs will be different for a loss of a finger as opposed to a loss of limb or of the eyesight.

How is AD&D different from Life Insurance Policies?

AD&D insurance policies do not have the need for the holder to present proof of insurability and they have no guidelines. They are paid out according to when an accident happens. As soon as the accident occurs the payout is made. AD&D insurance policies cost less because their coverage is limited. Life insurance policies cover a wider range because when the holder dies the full amount is paid.

AD&D insurance policies incorporate progressive payouts. For instance, if the holder loses a limb the policy will pay out 25% of the cash value. If the holder loses the sight in both eyes than the AD&D policy will pay out the full paid amount. This one limitation of the AD&D policy because it can be limiting in payouts.

AD&D insurance policies allow the holder to add his children and his wife so the holder can save money. Life insurance policies cover the individual only. This is a negative point of a life insurance policy.    

Are AD&D policies even necessary to Purchase?

Industry experts on the whole say if the holder has a life insurance policy they do not need an AD&D policy. But this may not be true because the AD&D policy can cover  gaps the life insurance policy will not cover. For example, if there is an accidental death or a loss of limb the AD&D policy will cover those specific circumstances.

It is recommended that a person buys a life insurance policy and to amend an AD&D policy to the package. If the holder dies accidentally the AD&D stipulation will allow a pay out 2 or 3 times greater than the normal payout. But still do you really need to buy an AD&D policy if you have life insurance?

It may be beneficial because the AD&D insurance policy will cover gaps in the package that life insurance may not cover. But do not depend solely on AD&D insurance to cover all circumstances it cannot because the coverage is specific and too limiting.

Final Thoughts

In this article, we have covered what life insurance is and what AD&D insurance is. The differences between the two different insurance types have been explained. It is clear that life insurance policies are dramatically different from Accidental Death and Dismemberment insurance policies. The differences could dramatically change how you insure yourself and your loved ones in the future.


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March 4, 2019 Life Insurance vs. Accidental Death Insurance Explained