Accidental Death Insurance: What you must know before buying it

By Lorne Marr, CFP
Special to the Financial Independence Hub

Some insurance products are quite straight-forward (e.g. term life insurance), but others were created when insurance companies saw an opportunity in the market to increase their sales while reducing their own risk of needing to pay the claims. Accidental death insurance (often called accidental death and dismemberment) is one of these products.

Think of this product this way:

“If you look for a simple explanation, imagine all life insurance products to be cars. Your accidental death insurance is a car that you can drive only 30 minutes a day and only in one particular neighbourhood …”

Now, let’s understand this product better …

What is accidental death insurance?

Accidental death insurance is a life insurance policy (or an addition to an existing policy) that pays a claim only in particular cases: when the cause of death is an accident. In other cases, this insurance will pay nothing.

An important statistic to know is that only ~5 per cent of all deaths in Canada originate from accidents. That means that, in 95 per cent of cases, the policyholder will not be paid.

What is accidental death and dismemberment insurance?

Accidental death and dismemberment insurance is an insurance policy that pays a claim only if a death or a dismemberment (such as the loss of a particular body part, like a leg, hand, finger, etc.) occurred due to an accident. Typically, an accidental death and dismemberment insurance contract will define what amount will be paid in case of death and certain different types of dismemberment. Claim coverages associated with heavier dismemberments (e.g. a lost leg) are normally higher than claim coverages associated with smaller dismemberments (e.g. loss of a finger).

Is accidental death insurance worth it?

The quick answer is that, in most cases, it is not worth it. Insurers are simply exploiting people’s fear of a possible accident by selling this insurance product. The same relates to accidental death and dismemberment insurance.

It has been mentioned already that most death cases are not related to accidents, which only account for roughly 5 per cent of all deaths. Nowadays, most deaths are caused by health conditions, such as cancer. These are not covered by accidental death insurance.

Furthermore, accidental death insurance does not cover many real-life situations where the risk of accidental death is higher than usual (e.g. dangerous jobs, sky-diving, etc.).

Often, this insurance coverage is more expensive than similar term life insurance since insurance companies might see you as a higher risk if you decide to buy this product.

Bottom line – it covers less and may cost more.

How do the costs of accidental death insurance compare to life insurance?

We asked Richard Parkinson, an insurance expert for Accidental Death Insurance, to run for us some numbers to understand better insurance pricing for various policies.

This is an example for female policyholders who are 30, 40 and 50 years old. The coverage is $250,000: identical across all policies. Please note that these numbers are approximate and can vary from person to person.


30 YEARS OLD $23 $15 $20 $28
40 YEARS OLD $23 $18 $30 $54
50 YEARS OLD $23 $40 $40 $98

“It is also important to know that most AD&D (accidental death and dismemberment) plans offer a maximum of $250,000 – $300,000.” says Richard.

What is the difference between life insurance and accidental death?

There are four main differences between life insurance and accidental death insurance:

  1. What’s covered: Accidental death insurance covers only death that occur as the result of an accident (~5 per cent of all deaths); life insurance covers a far wider range of cases.
  2. Initial medical exam: Accidental life insurance requires no medical exam, whereas life insurance will typically have a medical exam (unless it is no medical life insurance). The reason is, again, that death cases that are covered by accidental life insurance do not include health-related deaths.
  3. Ability to convert the policy: Accidental death insurance cannot be converted into normal life insurance, whereas life insurance policies can be often converted into other types of life insurance policies.
  4. Price: Accidental death insurance (and therefore accidental death and dismemberment insurance) can be more expensive than term life insurance for the same amount of coverage. That certainly depends on the Term for Life Insurance that you’ll choose.

Which insurance should I choose? 

In most cases, the best alternative to accidental death insurance is a simple term life insurance policy, which will be cheaper and will provide significantly better coverage (more potential death cases covered). Yes, you might need a medical exam if you want to benefit from better rates, but even with some health pre-conditions, you can qualify for very competitive rates.

Let us provide you with very affordable life insurance quotes so we can show you how we can save you money. As one of the oldest and most respected Canadian life insurance brokerages, we work with 20+ Canadian life insurance companies and can offer you the best products.

Lorne Marr  is a Certified Financial Planner (CFP) and started in the life insurance industry in 1993 after completing his MBA at the University of Windsor. He has won numerous advisor awards and has appeared in the Toronto Star, The Globe and Mail, The National Post, The Toronto Sun, The Investment Executive and Money Sense Magazine. This article originally appeared on the LSM Insurance website on Julne 11, 2018 and is republished on the Hub with permission. 

One thought on “Accidental Death Insurance: What you must know before buying it

  1. Good article, too many people see this on their group plan and don’t realize it’s limitations. Same goes for on credit cards.

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