Accidental Death and Dismemberment Insurance (AD&D)
Accidental Death and Dismemberment Insurance (AD&D) provides a tax-free lump-sum payment if you die or suffer a severe injury as the direct result of an accident. It is designed to offer financial protection for you and your family in the event of an unexpected, accidental injury or loss that causes death, dismemberment, or permanent disability.
How It Works
AD&D pays a lump-sum benefit if you die or suffer specific serious injuries as a result of a covered accident. You can buy it as a standalone policy, get it through a group plan at work, or add it as a rider to an existing life insurance policy. Dismemberment refers to the loss, or loss of use, of limbs, sight, hearing, and speech in an accident. Injury benefits are typically paid according to a schedule, based on a percentage of your total coverage amount, so an accidental death pays the full coverage amount to your beneficiary while the loss of a limb or sight may pay a partial percentage such as half. Coverage applies only when the injury or death results from an external, sudden, and accidental cause, and within a specific time frame following the incident, typically 12 months.
Example:
Imagine a Canadian worker who adds AD&D coverage to a group benefits plan through their employer. If they die in a covered motor vehicle accident, their named beneficiary receives the full coverage amount as a lump sum. If instead they survive but lose the use of one hand in a workplace machinery accident, the schedule of losses in the policy might pay only a percentage of that coverage amount, such as half, directly to them. If they later die of an illness such as cancer, AD&D pays nothing, because the policy responds only to accidental causes.
What to Watch For:
AD&D does not cover death or injury caused by illness, disease, or natural causes, which is what sets it apart from life insurance, so a death from a heart attack or cancer would not be paid. Plans also come with exclusions and may rule out death or dismemberment from high-risk activities, illegal activities, mental illness, or self-harm. Because AD&D covers only specific situations, it is relatively inexpensive compared with traditional life insurance. It should not be considered a substitute for traditional life insurance; it is meant to supplement it by providing extended coverage for unexpected accidental events.
