AD & D (Accidental Death & Dismemberment Insurance)

Question 1

Uses of AD & D

Answer 1

• A rider on a basic life or health insurance policy
• Widely used in group insurance plans

Question 2

Nature of AD & D Policies

Answer 2

The purest form of accident insurance, providing the insured with a lump-sum benefit in the event of accidental death or dismemberment under accidental circumstance. Typically, AD & D is a part of group insurance plans.

Question 3

Dismemberment Definition

Answer 3

• Loss of hands or feet
• Loss of sight in one or both eyes
• Loss of body member is typically defined as actual severance from the body, though it may include loss of us, depending on the policy

Question 4

Expenses not covered by AD & D

Answer 4

• Separate benefits for hospital, surgical, and other medical expenses excluded in AD & D policies; but
• Some policies may pay a medical reimbursement benefit up to a stated amount

Question 5

AD & D Benefits – Principal Sum

Answer 5

• The amount under an AD&D policy that is payable as a death benefit if death is due to an accident.
• It’s the amount of insurance purchased, e.g. $100,000
• The principal sum represents the maximum amount the policy will pay.

Question 6

AD & D Benefits – Capital Sum

Answer 6

• Amount provided for accidental dismemberment or loss of eyesight. Indemnities for loss of one member or sight of one eye are percentages of the capital sum.
• It’s a specified amount, usually expressed as a percentage of the principal sum, which varies per the severity of the injury.
• E.g. the loss of a foot or hand is typically 50% of the principal sum. The loss of an arm or a leg is usuall 75% of the principal sum.
• The most extreme losses (e.g. both feet or sight in both eyes) generally qualify for payment of the full benefit, which is 100% of the principal sum.

Question 7

Double & Triple Indemnity

Answer 7

• Some AD & D policies pay double, triple, or even quadruple the principal sum if the insured die under specified circumstances
• A double payment is called double indemnity
• If three times the principal sum is payable, it is called triple indemnity

Question 8

Valued Contracts

Answer 8

AD & D policies pay a stated benefit, so, they are valued contracts instead of contracts of indemnity.

Question 9

Definition of Accident

Answer 9

• In all cases, an accident is “external & violent.”
• AD & D policies, like disability income policies, distinguish injuries due to a “accidental means” and those due to “accidental results” (or referred to as “accidental bodily injury”)

Question 10

Accidental Means

Answer 10

• Unforeseen, unexpected, unintended cause of an accident.
• Both the cause and the result of an accident must be unintentional.

Question 11

Accidental Results

Answer 11

• Less restrictive than accidental means
• The provision stipulates that only the injury resulting from an accident must be unintentional
• Most states require that policies that provide any form of accident benefit, including AD & D, use results definition.
• If Ted, the insured under an AD&D policy, intentionally jumps from the roof of his house after fixing his antenna (instead of climbing down the ladder) and so severely injures his leg that it must be amputated, he would be paid the appropriate percentage of the capital sum only if his policy used the “results” definition. If his policy used the “means” definition, no benefit would be payable because Ted intentionally performed the action (i.e., the jump) that resulted in the injury.

Question 12

Different ways of purchasing AD & D

Answer 12

• can be purchased by individuals as a single policy;
• may be a part of an individual disability income policy
• Quite typically, it is an aspect of a group insurance plan (either group life or group health) or it may in and of itself constitute a group plan
• Usually, AD&D benefits are payable whether the injury resulted on or off the job.

Question 13

Limited Risk Policies

Answer 13

• Specific type of AD & D
• Designed to protect people against specific illnesses, such as ery expensive illnesses (caner or heart disease)
• Specific kinds of accidents, for example, an aviation policy provides benefits for accidental death or dismemberment if death or injury results from an aviation accident during a specified trip.
• Travel accident covers most kinds of travel accidents, but only for a specified period of time, such as one year.

Question 14

Special Risk Policies

Answer 14

• Provides coverage for unusual hazards normally not covered under accident and health insurance, such as a concert pianist insuring his hands for a million dollars.
• An actress who insures her legs for $1 million or a pilot test-flying an experimental airplane who obtains a policy covering his life while flying that particular plane are both purchasing special risk policies. However, a traveler who purchases an accident policy at the airport to provide coverage while she is a passenger on a commercial airlines flight is purchasing a limited risk policy.

Question 15

Tax treatment of death proceeds

Answer 15

• Death benefits paid to a beneficiary under a health insurance policy – not taxable (Federal)
• If the proceeds are included in the insured’s taxable estate, taxable.