What Are the 5 Main Differences Between Accidental Death and Term Life Insurance?

differences between accidental death and term life insurance

Insurance can be confusing. The terminology and variety of plans are among the reasons people remain uninsured. As Businesswire says, “awareness regarding understanding the products and services offered by the insurance companies act as a significant challenge to the growth of the life insurance market in India.” But we can reduce the confusion between Accidental Death and Term Life Insurance.

Accidental Death and Term Life Insurance are designed to cover most risks in an average life. Nonetheless, they are not the same in form, purpose, or price. Understanding the differences should help you make the most appropriate decision when considering life insurance.

  1. Structure

Term Life was conceived to underwrite your life and personal goals at an affordable cost. It is prepared for a “term” of months or years with no saving aspect. For example, that time frame might coincide with your mortgage to be sure your big investment in your home is protected.

Accidental Death Insurance (accidental death and dismemberment or AD&D insurance) provides a lump sum death benefit if you die in an accident like a car crash, a workplace injury, an equipment failure, or a homicide. 

  1. Cause of death

Term Life Insurance will pay if you die of natural or accidental causes during the term of the insurance plan (as long as you pay the premiums). In India, the insurance benefit will not pay if the nominee dies while committing a crime, if the policyholder dies in an accident under the influence of alcohol, if the insured has not disclosed a smoking habit, if the results from undisclosed preexisting health conditions, participation in hazardous activities, or suicide.

Accidental Death insurance will pay in the event of death cause by accident. However, it does not pay if you die of natural causes like cancer, heart disease, or suicide. In addition, the “dismemberment” benefit provides some benefit if you lose a limb, suffer severe injury, or become paralyzed as the result of the accident. 

  1. Premium

Term Insurance is affordable because there is no saving provision. Accidental Death insurance costs even less because it lacks the saving aspect plus the causes of death are more restrictive.

  1. Death benefit cap

Term Life insurance is available in amounts permitted by the insurance underwriters. It might cover your modest funeral expenses or a larger amount to pay off your mortgage or continue your business’s operations.

Accidental Death insurance is usually capped at $500,000. Larger amounts may be available from some insurance companies with extensive underwriting scrutiny.

  1. Underwriting conditions

Term Life Insurance may require a physical exam, especially for higher insurance benefits or for older applicants. It may require a medical questionnaire for lower benefits.

Accidental Death Insurance requires no medical exam or questionnaire.

Your final insurance takeaway!

Term Life Insurance and Accidental Death Insurance should not be confused. They are both affordable solutions for your financial needs. And, they both provide the peace of mind knowing your family or business can continue the way you dreamed.

But they are not the same thing. You might include the ADD as a rider to your Term Life Insurance policy or other policy, or you can apply for it as a standalone policy. And, the lower cost Accidental Death Insurance should not replace the broader coverage of Term Life. 

Understanding these terms should help citizens fulfill their obligations and dreams. As IBEF says, “Demographic factors such as growing middle class, young insurable population and growing awareness of the need for protection and retirement planning will support the growth of Indian life insurance.”

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