Accidental Death Benefit

Article byPriya Choubey
Edited byAlfina
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Accidental Death Benefit?

Accidental Death Benefit (ADB) is an insurance coverage clause or provision that allows financial security to the designated beneficiaries if the policyholder’s death results from a covered accident. It can be an optional add-on or rider to a life insurance policy.

Accidental Death Benefit

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It provides supplementary financial protection to the insured’s family and dependents in their unfortunate death in car accidents, commercial airplane crashes, falls, fires, or other unforeseen circumstances. The ADB clause in a life insurance policy is significant for individuals in dangerous jobs or professions like firefighters, lifeguards, and pilots.

Key Takeaways

  • Accidental Death Benefit (ADB) is a form of insurance coverage that offers an additional payout if the insured individual passes away due to an accident.
  • It can be taken up directly through an accidental death insurance policy or as a rider to the term or whole life insurance policy to secure additional protection for the insured’s family or other dependents in case of sudden demise due to a covered accident.
  • However, covers often exclude death due to illness, natural demise, or suicide. Also, the insurance providers end such benefits after the policyholder reaches the age of 60, 70, or 80 years.

Accidental Death Benefit Explained

The accidental death benefit is the insurance money provided to a beneficiary in the case of the death of someone by accident. It can be taken individually or to complement traditional life insurance; however, it should not be seen as a substitute. Comprehensive life insurance covers various scenarios, including deaths from natural causes. Such accidental death policies do not cover demises arising from natural causes, illnesses, or suicides. If the death of a policyholder results from an accident with coverage, the beneficiary receives the ADB amount. This is in addition to the standard death benefit.

The payout from accidental death benefit is directed to the beneficiaries specified in the policy. They can be family members, friends, or individuals chosen by the policyholder. Like other forms of insurance, ADB necessitates regular premium payments, which are deducted monthly from the insured’s bank account. The cost of premiums is influenced by factors like the policyholder’s age, health status, and the selected coverage amount.

In the unfortunate event of the insured person or annuitant’s death due to an accident, the beneficiaries must initiate a claims process with the insurance or annuity provider. The beneficiaries must fill out and submit the death claims form with the respective insurance company. They should also submit the necessary documents and proof of the accident, such as a death certificate.

If there are multiple beneficiaries, they have to fill out the claim forms separately. It is crucial to thoroughly review the terms and conditions of a term insurance policy, including the accidental death benefit clause. One should also carefully consider their overall insurance needs to ensure adequate coverage for specific circumstances.

Benefits And Coverage

The life insurance accidental death benefit offers supplementary financial security to the beneficiaries in the event of the insured individual’s demise due to an accident. Such coverage disburses an additional sum above the regular death benefit outlined in the policy.

Its primary function is to provide extra financial assistance to the family or designated beneficiaries of the insured individual. This can help them manage expenses such as medical bills, funeral costs, or other financial obligations that may arise following accidental death.

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Accidental Death Benefit Rider

An accidental death benefit insurance rider is an added provision that one can opt for with a whole or term life insurance policy. It offers extra coverage or a higher claim amount in case of the policyholder’s death due to an accident. One can add such a provision to the life cover at any time. Moreover, some ADB or accidental death and dismemberment (AD&D) riders offer a further advantage by providing a payout for potential living coverage to the survivors when the injuries are fatal enough to abstain them from their jobs.

If the insured individual passes away due to a covered accident, this rider provides an additional one-time payment on top of the base life insurance coverage. Moreover, some policies may include a double indemnity feature. This doubles the payout in cases where death is caused by a covered accident.

It is essential to carefully review the policy’s terms and conditions to understand which types of accidents are eligible for coverage and the specific circumstances under which the rider will provide a payout. Many individuals choose this rider to secure additional financial protection in unexpected accidents. However, it increases the premium amount of the policyholder. It also automatically becomes ineffective as the individual turns 60 or above or as decided by the provider.

Examples

The ADB is a suitable insurance cover for people who have to deal with dangerous situations at their workplace. Let us go through the following examples to understand the advantages of this provision to the insured person’s dependents:

Example #1

Suppose Alice is a lifeguard at XYZ Beach. The beach authority provided her with a life insurance accidental death benefit cover of $50,000 ($40,000 + $10,000 as ADB). She pays a monthly premium of $500. This would have been only $400 if she had not opted for the ADB. After a few months, she unfortunately drowned in the sea, saving a visitor. On her demise, her husband (beneficiary) received a $ 50,000 lumpsum payout as the life insurance claim with ADB.

Example #2

Another example is State Farm’s Whole Life Insurance Plan, which comes with multiple optional policy provisions, including the accidental death benefit if the policyholder pays the additional premium. In its ADB provision, the insured’s beneficiaries will receive double or even triple (in some cases) the policy’s face amount if the policyholder dies in a covered accident.

Exclusions

ADB contains specific conditions or situations outlined in an insurance policy that would prevent the payout. These exclusions can differ based on the insurance company and policy, but the general ones include:

  1. Intentional self-inflicted injuries: The beneficiary is not eligible for ADB if the insured person intentionally harms themselves, resulting in death. Such an exclusion discourages suicidal attempts by the insured.
  2. Engaging in hazardous activities: The occurrence of demise due to the insured’s participation in dangerous activities like extreme sports or illegal actions may lead to the rejection of accidental death benefits.
  3. Alcohol or drug abuse: The beneficiary does not receive any benefits if the insured person dies due to an overdose of alcohol or non-prescribed drugs.
  4. Aviation-related exclusions: Certain policies exclude death that happens while the insured is a passenger on a private or non-commercial aircraft.
  5. Pre-existing medical conditions: The benefit may not be payable if the insured had a pre-existing medical condition at the time of policy issuance, directly contributing to their death.
  6. Criminal activity: The beneficiary may not receive any benefits if the death results from the person’s involvement in a criminal offense.

Accidental Death Benefit vs Life Insurance

Accidental death benefit (ADB) and life insurance are two different types of insurance products that serve distinct purposes, as discussed below:

BasisAccidental Death Benefit (ADB)Life Insurance
DefinitionADB is a type of insurance that offers an extra payout to the beneficiaries if the insured individual passes away due to a covered accident.Life insurance is a plan that offers financial security to beneficiaries upon the policyholder’s death, regardless of the cause, be it an accident, illness, or natural causes.
Type of InsuranceSupplementary or additional rider Primary including term life, whole life, or universal life insurance
InclusionsAny accident covered under the provision, including road accidents, commercial airplane crashes, homicides, fires, falls, etc.Includes all kinds of death irrespective of the reason, such as accidental, illness, or natural death
PayoutLumpsum payment, sometimes in installmentsPays death benefit in a lump sum or installments to the chosen beneficiaries in case of the insured’s death, while a bonus and maturity benefit is received by the insured in the chance of their survival
Natural DeathNot coveredCovered
Illness or DiseaseNot coveredCovered
PremiumThe premium is additionally deducted from the policyholder’s account periodically, along with the life insurance premium.The premium is charged from the insured’s bank account periodically.
Claim SettlementIt may take up to one year from the date of the accidentLess than 30 days after receiving all the relevant documents along with the death claims form
TaxationAlthough tax-exempted, state or federal estate taxes may apply when such payout is added to the beneficiary’s estate. Also, the interest earned on such payouts is taxable.The life insurance payouts are exempted from any state or federal taxation.

Frequently Asked Questions (FAQs)

1. When an accidental death benefit is added?

An accidental death benefit insurance rider signifies a provision in an insured person’s term insurance plan that allows their beneficiary to receive additional compensation in case of their demise due to a covered accident, along with the regular life insurance policy payout. It is an optional coverage the insured takes to provide extra protection to their families.

2. Are accidental death benefits taxable?

The ADBs are generally exempted from income tax by Federal law. However, any interest received on such payouts is taxable. Also, if such benefits are added to the beneficiary’s estate, it is taxable per the federal or state estate tax laws.

3. Does accidental death cover natural death?

Accidental death includes an airplane crash, fatal road accident, falls, fire, wrongful death, etc. However, it doesn’t account for the natural demise of the insured.

4. What is the waiting period for accidental death?

In case of an accidental death, the insurer may take up to one year for claim settlement from the accident date.

This article has been a guide to what is Accidental Death Benefit. We explain its rider, coverage, comparison with life insurance, exclusions, benefits, & examples. You may also find some useful articles here –

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