Life insurance policies are in place to provide financial protection to beneficiaries after the loss of a loved one. When the unfortunate death is sudden and caused by an accident, though, it’s possible the policy’s payout amount may not be enough. Accidental death clauses provide additional benefits to beneficiaries of life insurance policies when the insured’s cause of death is something other than natural causes. It may provide a greater payout in addition to the base payout of the policy.
Let’s take an in-depth look at what an accidental death rider is, how it works and how it applies to life insurance policies.
What It Is
An accidental death rider is a clause added to a life insurance policy that provides benefits not typically included in the base policy. The insured person in this case will request that the accidental death rider be added to the policy, and then it must be underwritten by the insurance company.
When this rider is added to a life insurance policy, it will oftentimes increase the monthly premiums, for obvious reasons. A larger payout will always result in larger monthly premiums.
However, because the extra payout only occurs in certain circumstances, and not every time a payout is triggered, the increase in monthly premium is typically a lot less than just increasing the overall benefit payout of a policy.
Who Needs It
While an accidental death could certainly happen to anyone, there are certain people who most commonly will consider adding an accidental death rider to a life insurance policy. This includes people who work in a hazardous environment such as a construction site, power plant, or coal mine. People who drive more than the average person may also consider this rider — whether the extra driving is directly related to their job or is simply to commute to work. It is not likely “needed” by anyone, but if the insured person has a higher likelihood of dying an accidental death, you may want to consider adding it to your policy.
What Qualifies as an Accidental Death
In general, an accident for life insurance purposes is considered to be anything that causes death in a non-natural way. Deaths from medical conditions such as a heart attack, stroke or cancer, for example, are all considered natural causes and wouldn’t qualify as an accidental death — no matter at what age the insured passed away.
Accidents for insurance purposes include death caused by choking, car crashes, slips, machinery, or drowning. All life insurance policies that have accidental death riders will specifically lay detail which incidents would qualify to trigger the benefit. The SEC defines accidental death riders very clearly here.
Some policies will also provide accidental death benefits if the insured dies within a certain period of time after the accident occurs. This would mean that the death could occur after the actual accident happened and still trigger the accidental death benefit.
A rider may, for example, provide benefits for one year after the accident occurred. This means that if the insured died within the one year following a car accident, the accidental death benefit would still apply. The insured wouldn’t have to die at the time of the actual accident in this instance.
In some cases, accidental death benefits can cover dismemberment, paralysis, and burns. These riders are referred to as AD&D, or accidental death and dismemberment. There are some exclusions that most accidental death riders include. Any death that is caused by illegal activity or during the war is typically excluded. Illnesses are typical exclusions as well, even if it is a rare illness or happens at a young age. Accidental death riders also commonly don’t cover an insured person if they engage in a hazardous hobby on a regular basis. This could include bungee jumping, base diving, or driving a race car.
How It’s Paid
As mentioned, an accidental death rider provides a payout benefit on top of the standard payout of the life insurance policy. If the insured dies while being covered by a life insurance policy, the beneficiaries will collect the full policy benefit. If the cause of death is a qualifying accident when the insured has an accidental death rider, the beneficiaries will receive an additional payout. Here is an example.
Let’s say a life insurance policy has a standard payout of $300,000. The insured then adds an accidental death rider that has a payout of $1 million. If the insured dies as a result of a heart attack, the beneficiaries will receive the standard payout of $300,000 because a heart attack is considered a natural cause of death.
If, however, the insured dies as a result of a car accident, the beneficiaries will receive the standard $300,000 payout, plus an additional $1 million. That’s because a car accident qualifies as an accidental cause of death, which would trigger the accidental death benefit of the life insurance policy.
The Argument Against this Rider
This rider doesn’t have a clear purpose, in our opinion. The way that a person dies should not necessitate more or less life insurance coverage for the insured person. Their beneficiaries need the same support whether death is the result of an accident or an illness. In fact, and illness may be more expensive because there are more medical bills associated with the care leading up to death.
This rider is sort of a gamble. If someone needs additional coverage they should purchase additional coverage, not make a bet on the way that a death will occur. For this reason, we do not recommend this rider to our clients. However, it is offered by life insurance companies and you can add it to your policy if you wish.
Types of Benefits
Some accidental death benefits may be included as part of a life insurance plan. Group life supplements, for example, apply in situations where an employer offers its workers a life insurance policy. These policies may include automatic accidental death benefits, without the need for riders on individual plans. There are also group life plans that have a voluntary option for accidental death benefits. Companies that offer employees life insurance plans could offer them an option to add an accidental death rider. Each employee would need to voluntarily elect to add the rider to their individual plan.
Do You Need an Accidental Death Rider?
While anyone can suffer an accident that results in death, there are some people to who this is more likely to happen than others. If you drive more than the typical person or work in a hazardous environment, for example, it may be smart of you to consider adding an accidental death rider to your life insurance policy.
Speak with your insurance agent if you have questions about how an accidental death rider works with their plans, and whether adding one to your plan would be advantageous.