Life insurance policies might vary in some of their mechanics, but they work essentially the same: As long as you pay the insurance company a regular premium, when you die the company pays the face amount of your policy to your beneficiary. Some policies include an accidental death provision that increases the payout if you die as the result of an accident. The payout is commonly twice the policy's face value, so this provision is often referred to as double indemnity.
The accidental death, or double indemnity, provision typically does not come as a standard part of most term or whole life insurance policies. Your insurance company might offer an accidental death rider to your policy, but that usually means you'll end up paying an additional premium for that extra coverage.
The double indemnity rider of most life insurance policies typically only applies to cases of accidental death or wrongful death. Provisions of such riders typically exclude death due to suicide, grossly negligent acts by the insured, murder or conspiracy to commit murder by the beneficiary and death by natural causes. In some cases, the double indemnity rider only kicks in if the cause of death was solely an accident and was not contributed to by any other factor. For example, if an insured had a heart attack while driving, which made her lose control of her car resulting in a fatal wreck, the double indemnity provision would not apply, since the heart attack was a factor in the death.
Financial guru Dave Ramsey notes that you aren't twice as dead just because you die by accident. Instead of paying additional money for a double indemnity rider that is unlikely to pay off, you might be better off to accurately project how much life insurance you actually need, and use the money that you would have paid for an accidental death rider to pay for the additional life insurance.
Accidental Death and Dismemberment
Some insurance companies offer a separate accidental death and dismemberment insurance policy. The premiums on such policies are usually quite cheap. Your credit card company or bank might even provide you with a small AD&D policy as a gesture of good will. AD&D policies are not standard life insurance policies, because they may only pay off if your death is caused solely by an accident as defined by the insurance company. Because Centers for Disease Control and Prevention statistics show that the average American is 10 times more likely to die from natural causes, such as heart disease, stroke, cancer or respiratory disease, than from an accident, buying a separate AD&D policy might be more expensive than it appears at first blush.
- Insure.com: The Basics of Accidental Death and Dismemberment Insurance
- Legal Match: Double Indemnity Laws
- Illinois Department of Insurance: Frequently Asked Questions—Individual Life Insurance
- Insurance.com: Accidental Death and Dismemberment Insurance
- Dave Ramsey: Accidental Death and Dismemberment
- Insurance Information Institute: Why Should I Buy Life Insurance?
- Centers for Disease Control and Prevention: Leading Causes of Death
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.