Accidental death and dismemberment

You've probably received offers for accidental death & dismemberment (AD&D) from your credit card companies, mortgage holder, bank or other organizations. But it's important not to confuse this type of insurance with standard life insurance. It's especially important to avoid relying solely on AD&D to provide for your dependents in the event of your death.

AD&D policies are relatively inexpensive and easy to understand. At first blush, purchasing an AD&D policy might seem like a wise investment for anyone. If you die accidentally, your beneficiary stands to collect lots of money. If you lose an arm or other limb, or your sight, you would collect a significant sum (specific payments will be spelled out in your policy application).

But is AD&D really a good value? Some industry experts say it's probably not, if you consider the odds of making a claim (and the small number of actual claims is why these policies can be offered so cheaply).

Just how likely is it you'll die from an accident? According to the Centers for Disease Control and Prevention, 121,599 people died from unintentional injuries in 2006 (the latest data available). A 2009 National Center for Health Statistics report says that age is also a factor in the leading causes of death. If you are a 35-year-old nonsmoking male, you are four times likely to die in an accident before age 45 as you are to die from heart disease. If you are a woman of the same age, you’re twice as likely to die in an accident than from breast cancer. Compare that to the death rates for the No. 1 killers of heart disease (204.1), malignant neoplasms (cancer, 185.7) and cerebrovascular diseases (such as diabetes, 44.4).

You're more likely to die from natural causes than from an accident if you are older than 45, according to the NCHS report. You're also more likely to become disabled by a back injury than you are to lose a limb, but that also depends on what sort of risks you engage in.

Because AD&D policies pay out only in specific, generally unlikely circumstances, you're far better off putting your insurance dollars into other policies that will provide broader coverage, such as:

• Life insurance: For protection against the more likely risks, like dying of old age or cancer, you're better off putting your monthly premium payment toward a standard life insurance policy.
• Health insurance: If you're injured in an accident, health insurance will help cover hospital and medical bills. Of course, health insurance does not pay you a lump sum should you lose a limb or your sight.
• Workers comp: If you do lose a limb — or hurt your back — on the job, workers compensation likely covers treatment for your injury.

However, AD&D may fill in some gaps. If you do have an AD&D policy, it will pay out in addition to other coverage you have. For example, if you lose a limb on the job, workers comp would still pay for your treatment and the AD&D policy would pay you a lump sum.