What Is Accidental Death & Dismemberment (AD&D)?

Accidental Death & Dismemberment (AD&D) insurance provides financial protection in the event of severe injury or death resulting directly from an accident. This type of coverage is distinct from traditional life insurance, which typically covers death from any cause, including illness or natural aging. AD&D policies offer a specific safety net, paying benefits only when an injury or death is the unforeseen and direct outcome of an accidental event.

Core Coverage of AD&D

AD&D insurance addresses two types of incidents: accidental death and dismemberment. For a death to be considered accidental under these policies, it must be the direct and sole result of an external, unforeseen, and violent event. This distinction means that death due to natural causes, illness, or medical conditions is not covered, even if an illness contributes to an accident, such as a heart attack causing a car crash. Common incidents that typically lead to a covered accidental death include traffic accidents, falls, drowning, homicides, and fires. Workplace accidents and unforeseen events like being crushed by falling objects or electrocution are also frequently covered.

Dismemberment, within an AD&D policy, refers to the complete and irrecoverable loss of specific body parts or bodily functions. This loss must also directly result from a covered accident. Policies commonly define dismemberment as the severance of a limb at or above a major joint, or the permanent and complete loss of sight. Beyond limbs and sight, covered losses often include the permanent loss of hearing in one or both ears, the ability to speak, or paralysis.

Situations Not Covered by AD&D

While AD&D insurance offers specific protection, it is important to understand its limitations, as many situations are typically excluded from coverage. Policies generally do not pay benefits for death or injury caused by illness, disease, or natural causes, such as heart attacks, cancer, or complications from a pre-existing medical condition. This distinction highlights that AD&D is not a substitute for comprehensive life or health insurance.

Self-inflicted injuries, including suicide, are excluded from AD&D coverage. Similarly, death or injuries sustained while under the influence of non-prescription drugs or alcohol are typically not covered. Engaging in illegal activities or committing a felony also voids coverage for any resulting death or injury.

High-risk activities often fall under exclusions, which can include professional sports, aviation (unless as a fare-paying passenger on a commercial flight), skydiving, or bungee jumping. Injuries or death resulting from acts of war or from medical or surgical treatment (unless directly necessitated by a covered accident) are usually not covered.

Benefit Structure and Payouts

An AD&D policy centers on a predetermined amount known as the “principal sum.” This principal sum represents the maximum benefit payable for an accidental death or the most severe dismemberment. For a covered accidental death, the full principal sum is typically paid as a lump sum to the designated beneficiary or beneficiaries.

Dismemberment benefits are structured as a percentage of the principal sum, varying based on the severity and type of loss. For example, the loss of two limbs, the sight in both eyes, or complete paralysis often results in a payout of 100% of the principal sum. The loss of a single limb, sight in one eye, or hearing in one ear might yield a payout ranging from 25% to 50% of the principal sum, depending on the specific policy terms. Partial losses or less severe injuries may result in smaller percentages, such as 10% to 25% of the policy amount.

Designating beneficiaries is an important step for policyholders, as it ensures that the death benefit is paid according to their wishes. Beneficiaries are responsible for notifying the insurer and submitting required documentation, such as a death certificate or other required documentation. Generally, AD&D insurance payouts received by beneficiaries are not subject to federal income tax, provided the premiums were paid with after-tax dollars. However, if benefits are paid out in installments and include interest, that interest portion may be taxable. For employer-sponsored AD&D coverage, employer contributions for coverage exceeding $50,000 may result in imputed income for the employee, which is subject to Social Security and Medicare taxes.