Accidental death and dismemberment insurance offers financial protection in the event of death or loss of limb or function due to an accident.
This guide will explore what exactly AD&D insurance covers, who needs it, where to buy it, and the pros and cons of this supplemental insurance product.
What is AD&D Insurance?
Unlike regular life insurance in Canada, which covers any cause of death, Accidental death and dismemberment (AD&D) insurance covers deaths that occur due to accidents. This includes fatal accidents and dismemberment – which refers to the loss of limbs, appendages, sight, speech, hearing, and other functions due to an accident.
In essence, AD&D insurance provides financial protection to your family if you unexpectedly pass away or suffer permanent disability due to an accident. It is usually offered as a supplement or rider to add to existing life insurance coverage.
This insurance can be purchased in various coverage amounts, typically ranging from $25,000 to $500,000, based on your specific needs and budget. Policies are available as individual plans directly from insurance companies or group plans through an employer. Premium costs vary but are generally more affordable than regular life insurance since they only cover accidents.
What Does AD&D Insurance Cover?
AD&D insurance covers both accidental death and dismemberment/loss of critical functions in the event of an accident.
Fatal Accidents Covered
AD&D insurance covers death due to accidents such as:
- Motor vehicle collisions, including car, motorcycle, bus, or pedestrian accidents
- Workplace accidents like falls, equipment malfunctions, electrocutions, and injuries involving machinery
- Construction accidents
- Drowning
- Falls from heights
- Burns or smoke inhalation
- Natural disasters such as tornados, floods, or earthquakes
- Airplane, helicopter, or hot air balloon crashes
- Recreational accidents like boating, biking, horseback riding, or skiing
- Accidents involving firearms, explosives, or electrocution
Essentially, AD&D insurance covers deaths that occur due to violent external causes and not due to medical issues or natural causes. Death must occur within a specified timeframe of the accident for the benefit to be payable, usually within 90 days, depending on the policy.
Dismemberment and Loss of Function Covered
In addition to accidental death, AD&D also covers dismemberment and loss of critical functions. This includes the loss of:
- Limbs such as arms, legs, hands, feet, fingers, or toes
- Sight in one or both eyes
- Speech
- Hearing in one or both ears
These policies have a schedule that outlines the percentage of the death benefit paid for the loss of each body part or function. For example:
- Losing both arms may pay 100% of the death benefit
- Losing one arm may pay 50% of the death benefit
- Losing a finger may pay 5-10% of the death benefit
- Loss of sight in both eyes may pay 100% of the death benefit
- Loss of sight in one eye may pay 50% of the death benefit
- Complete loss of hearing may pay 50-100% of the death benefit
- Loss of speech may pay 50% of the death benefit
The exact dismemberment and paralysis benefits vary by insurer and policy. Most plans include a schedule outlining the percentages payable for each type of loss. This coverage provides important financial protection in case of an accident that results in permanent disability but not death.
What is Not Covered by AD&D Insurance?
While AD&D insurance covers a wide range of accidental injuries and deaths, most policies have exclusions for certain circumstances, including:
- Death due to natural causes like heart attack, stroke, illness, disease or sickness
- Suicide or intentional self-inflicted injuries
- Deaths caused while committing a crime
- Deaths caused by voluntary use of drugs or alcohol
- Deaths caused by war, terrorism, insurrection, riots, or civil disobedience
- Deaths caused by mental illness or psychiatric disorders
- Participation in hazardous hobbies like scuba diving, race car driving, hang gliding, etc
- Injuries or death while serving as an active member in the armed forces, national guard, or organized reserve corps
- Aviation accidents unless travelling as a ticketed passenger on a commercial flight
It’s important to review the exclusions section of this type of insurance, as benefits will not be paid if death or dismemberment occurs due to excluded causes.
Who Needs AD&D Insurance?
AD&D insurance is designed to provide supplemental coverage and is especially beneficial for:
Individuals in High-Risk Occupations
People who work in construction, mining, forestry, oil and gas drilling, roofing, fishing, firefighting, and other dangerous jobs have an elevated risk of dying in a workplace accident.
For example, the fatality rate in the mining sector is 46.9 per 100,000 workers, compared to just 3.5 per 100,000 across all occupations. This coverage provides added financial peace of mind for people in high-risk professions and their families.
Those Who Want to Supplement Existing Life Insurance
Many people purchase AD&D coverage in addition to their regular life insurance policy. This provides extra coverage specifically for accidental death, essentially “doubling” the death benefit if you pass away due to an accident.
Its payout supplements the regular death benefit from the life insurance policy, providing extra funds to cover expenses and financial needs.
Anybody Seeking Affordable Protection
Because this insurance only covers accidents, premiums are more affordable compared to regular life insurance. This makes it viable for middle-income families or individuals who want supplemental protection without high costs.
Group AD&D plans offered through employers are especially budget-friendly, often costing under $10 per month for tens of thousands of dollars in coverage.
Younger Individuals
AD&D insurance is ideal for younger individuals who are less likely to die from natural causes and want the added protection of accidental death coverage.
Premiums are lowest when purchasing at younger ages under 40. Those with young families can benefit from AD&D policies to protect loved ones.
Outdoor Enthusiasts
Activities like mountain biking, rock climbing, kayaking, or backcountry skiing do carry inherent risks in case of an accident. People who regularly participate in these adventure sports and outdoor recreational activities may want to consider AD&D insurance.
How Much Does AD&D Insurance Cost?
AD&D insurance is relatively inexpensive compared to regular life insurance since policies only pay out for accidents. Average costs are:
- Group plans via employer: $0.05 to $0.30 per $1,000 of coverage per month
- Individual plans: $0.30 to $0.80 per $1,000 of coverage per month
For example, $150,000 of AD&D coverage may cost:
- $7.50 to $45 per month through an employer
- $45 to $120 per month for an individual plan
So, a 30-year-old buying $250,000 of coverage may pay around $20 per month through work or $75 per month for an individual policy. Overall, group rates through employers are the most affordable.
There are five main factors that impact cost of AD&D insurance:
- Age: Premiums increase as you get older
- Amount of coverage: More coverage means higher premiums
- Type of policy: Group policies are cheaper than individual
- Insurer: Rates can vary significantly by insurance provider
- Extra benefits: Policies with additional features may cost more
Life Insurance vs. AD&D Insurance: Key Differences
Here is how life insurance and AD&D insurance differ in what they cover, what they cost, and who needs each type.
| Life Insurance | AD&D Insurance | |
|---|---|---|
| What it covers | – Death from any cause except suicide within first 1-2 years – Natural causes like illness, disease, old age – Accidental deaths like car accidents – Homicide, drug overdose, health conditions – No payout if just injured but alive | – Accidental death only – Dismemberment/loss of function from accident like loss of limb – Partial payout for injuries like loss of sight – Specified accidents only like car crash, work injury |
| Common exclusions | – Suicide in first 1-2 years typically – Death if stop paying premiums – Claims within contestability period (first 2 years) – Death while committing a crime | – Illness, disease, natural causes Suicide – Death from mental disorders – Drug/alcohol related deaths – High risk hobbies, war, disasters – Death from sickness/infection from accident |
| Cost | – Term life – $150-$600 annually depending on age – Permanent life – Over $1,000 annually – Higher face amounts cost more – Factors like health impact premiums | – $50-$300 annually depending on coverage amount – Typically cheaper than life insurance – Higher coverage amounts increase cost |
| Payout details | – Lump sum to beneficiaries, tax free – Death benefit amount chosen at purchase – Can designate multiple beneficiaries | – Percentage of death benefit paid based on loss – Full payout only for accidental death – Detailed schedule of dismemberment payouts |
| Who its for | – Majority of individuals – Families who need income replacement – Mortgage/debt coverage – Final expenses planning | – Dangerous jobs like construction, mining – High risk hobbies like skydiving – Supplemental to life insurance – Just need coverage for final expenses. |
| Policy term | – Term life – 10-30 years typically – Permanent life – Lifelong as long as premiums paid. | – Usually 1-year terms that renew – Policy ends at age 70 in most cases. |
| Can be combined? | Yes, AD&D can be added to life insurance as a rider | Yes, can purchase separate AD&D even if have life insurance |
What Are The Advantages and Disadvantages of AD&D Insurance?
AD&D insurance provides valuable supplemental coverage in case of an accidental injury or death. Benefits include:
- Added financial protection for families in the event of an accidental death
- Coverage for loss of limbs or bodily functions
- Relatively inexpensive compared to regular life insurance
- Available as group coverage through an employer
- Limited underwriting – no medical exam required
- Proceeds are tax-free
- Coverage amounts up to $500,000 available
- Can supplement existing life insurance
- Ideal for individuals in high-risk occupations
- A low-cost way to protect the family with group rates
While useful, AD&D insurance does have eight drawbacks to consider:
- Does not cover deaths from natural causes
- Lower probability of a payout than regular life insurance
- Not a substitute for adequate life insurance coverage
- Individual plans can be expensive compared to group rates
- Limited portability – group plans may not be portable
- Numerous exclusions exist for high-risk activities and causes of death
- Benefit limits for sickness and illness vary by policy
- Loss of income not replaced just provides a lump sum payout
Where Can You Purchase AD&D Insurance?
There are three ways to obtain AD&D insurance coverage:
Via Employer or Group Plan
Many companies offer group AD&D plans to employees. This allows staff to purchase affordable coverage through convenient payroll deductions. Group plan rates are substantially lower than buying individual policies. Over 10 million Canadians have AD&D coverage through group plans.
As a Rider on Existing Life Insurance
Most life insurance providers allow you to add an AD&D rider to your policy, often with limited underwriting. This supplements the regular death benefit with extra accidental death coverage for a small additional premium. It’s the easiest way to obtain if you already have life insurance.
Standalone Plans from Insurers
You can buy individual AD&D policies as standalone coverage directly through major insurance companies like Sun Life, Canada Life, RBC Insurance, BMO, and more. Premiums are higher than group plans but may be more cost-effective for large amounts of coverage.
The bottom line
Accidental death and dismemberment insurance provides affordable financial protection in case you die or suffer loss of critical function due to an accident. While not a replacement for life insurance, AD&D coverage is an inexpensive way to supplement existing policies.
With proper planning, this insurance can provide added peace of mind that your family will be taken care of financially in the unfortunate event of an accidental death or disability.
FAQs on Accidental Death and Dismemberment
Why is AD&D coverage affordable?
AD&D only covers accidents so there is less risk to insurers. This allows them to offer coverage at a lower premium cost than regular life insurance.
When does my AD&D coverage end?
AD&D coverage ends if you stop paying premiums or reach the age cap specified in the policy, usually around age 70. Group coverage ends if you leave your employer.
Do AD&D benefits get taxed?
No, AD&D insurance benefits are not considered taxable income. Your beneficiaries get the full amount tax-free.
Is AD&D worth it if I have life insurance?
It can provide supplemental coverage for accidents at a low cost. This is especially useful for those in risky occupations who want extra protection.
Does AD&D cover death from drug overdose?
Most policies exclude death due to the voluntary use of non-prescription drugs. Accidental overdoses may be covered if clearly unintentional.
Where can I buy individual AD&D insurance?
You can purchase individual AD&D insurance directly from companies like Sun Life, Canada Life, and RBC Insurance. Rates are higher than group plans.
