The Benefits And Drawbacks Of Borrowing Against Life Insurance

One can’t foresee when an accident will happen and they can happen in an instant, but the consequences can last a lifetime.

While life insurance policy protects your dependents if you die, it won’t provide a payout in the case of accidental death or if an accident left you dismembered or physically impaired. To have added financial security in sudden and tragic circumstances, you may want to consider accidental death and dismemberment (AD&D) insurance.

1. What Is Accidental Death and Dismemberment (AD&D) Insurance?

Accidental Death and Dismemberment (AD&D) Insurance is a policy that pays benefits to the beneficiary in case of a fatal accident or an accident causes a loss of limbs, speech, eyesight, or hearing. This is a limited form of life insurance which is less expensive. Since it’s a strictly limited policy which is clogged with a variety of specific terms that must be followed to the letter, it’s essential for consumers to carefully read the fine print before purchasing this type of insurance.

2. What Does AD&D Cover?

AD&D insurance is pretty straightforward and covers exactly what its name states — accidental death and dismemberment. If your death or dismemberment (loss of limbs, eyesight, speech or hearing) is the direct result of an accident, AD&D will pay you or your beneficiaries a specified amount. However, you must remember that in order to receive benefits related to an accident, your injuries or death must occur within a few months of the accident date.

And you’ll only get your benefits if your death or injuries are proven, direct results of the accident. On the event of dismemberment, you’re covered on a “per-member” basis, which means that the insurer will usually pay 50% of the full benefit if you lose one member (a hand, foot, limb, sight in one eye, speech or hearing). You’ll only be able to receive the full benefit if you lose both members.

3. What Does AD&D Not Cover?

Typical exclusions include death during surgery as well as death as a result of mental or physical illness, bacterial infection, hernia, non-commercial radiation, war injury, and natural causes. In addition, an injury or death while under the influence of non-prescribed drugs or alcohol, overdose with toxic and poisonous substances as well as an injury of a professional athlete during a sporting event may void the right to claim too.

4. Pros

You’ll find that low premiums for AD&D insurance a pleasant surprise. Since accidental death and other covered losses rarely occur, the costs are much less than term life insurance with similar limits. AD&D has an attractive benefit for young people who are more likely to die from an accident than illness.

AD&D can help an insured make up for some of the income lost in the event of dismemberment which makes them unable to work. If purchased as an addition to a term life policy, AD&D will provide “double indemnity,” or twice the death benefit to the insured’s beneficiaries.

5. Cons

Since the conditions under which it pays benefits occur so rarely, many financial advisors say AD&D is a poor investment. While AD&D costs less than term and whole life insurance, it also means that it doesn’t provide much benefit. In fact, it only provides a small amount of peace of mind.