The primary function of most life insurance is to pay out a death benefit to your loved ones when you pass away. But what if your insurance policy paid out more, depending on how you die? What if your insurance company paid out double the face value of your policy if your death was accidental? By adding an accidental death benefit rider to your whole life or term life insurance policy, it’s possible.
What is the Accidental Death Benefit Rider (ADB)?
The accidental death benefit (ADB) rider is a type of supplemental insurance that, for a small fee, can increase the benefit of your insurance policy. It is available for both whole life and term life insurance. In the event of your accidental death, it increases the face value of the policy by up to twice as much. Some insurance companies double the death benefit, while others only allow multiples of the face value equaling anywhere from $250,000 – $500,000.
Though the ADB comes as a rider, most traditional life insurance policies already cover accidental death and pay the death benefit for “any cause,” i.e. natural, injury, disease or accident. However, for a small increase in your insurance premium you can buy a considerable increase in your policy’s death benefit, effectively getting the policy to pay out twice in the event of an accidental death.
In the event you’re seriously injured in an accident, your insurance company may also pay out a partial benefit. In this case, the applicable rider is called an accidental death & dismemberment rider, or AD&D rider. The definition of a serious injury varies by insurer, but may include: partial or permanent paralysis, loss of a limb, losses of hearing, sight, or speech, severe burns, or other major trauma.
If you’re injured in an accident and that injury results in a death within a certain timeframe, usually anywhere from 90 days to a year, your insurance company will pay out the full accidental death benefit.
Example: Paula has a life insurance policy with a face value of $500,000. When she purchased the policy, she added an accidental death benefit rider, which also has a face value of $500,000.
If Paula passes away due to a terminal illness, her insurance company will pay out $500,000 to her beneficiary—the face value of her insurance policy. But if Paula passes away in a car accident, her insurance company will pay out $1,000,000 to her beneficiary—the face value of her insurance policy PLUS the face value of her accidental death benefit rider, resulting in double the benefit for her loved ones.
When the ADB Rider Makes Sense
There are three primary factors to consider before adding an adjustable death benefit rider to your insurance policy.
While younger people do develop terminal illnesses, most people who die in the earlier stages of life die accidentally. So it makes the most sense to add the accidental death benefit rider to any life insurance policy while you are in your 20s, 30s, and even 40s.
Typically, insurance companies decrease the benefit offered with an ADB rider around age 65, often up to 50%, and may discontinue ADB rider benefits altogether at age 70 or 80.
Consider the circumstances of a young family just starting out. Most individuals in the early stages of a career don’t have sufficient savings or liquid investments to support a family in their absence. Even individuals who have life insurance might wish for larger policies than they can currently afford.
Using the adjustable death benefit rider ensures that your family will be taken care of financially and given the monetary benefit needed to enjoy many of life’s opportunities, including additional benefit payout that can be used for outstanding mortgage payments, children’s college tuition, and cost of living.
Perhaps your occupation adds elements of risk that are greater than average, like additional driving responsibilities or travel requirements, operating heavy equipment, working with either heights or underground locations, chemicals, or a host of other hazardous and dangerous work environments. All of these justify additional insurance coverage. Even hobbies or more adventurous leisure activities might increase your desire to add the extra protection offered with an accidental death benefit rider.
Keep in mind that some occupations or activities might be so dangerous that the insurance company will not allow the ADB rider to be added to your policy. Insurance companies (or which state you live in) have a list of professions, i.e. police officers, firefighters and many others, that prohibit the rider from being added onto a life insurance policy.
Rider vs. Policy
An accidental death benefit rider isn’t the only way to find coverage for an accidental death. You can instead purchase an accidental death life insurance policy. Keep in mind these policies DO NOT cover death from natural causes; they only cover accidental death. For this reason, an ADB rider is also called a “double indemnity” rider, because your beneficiary gets a pay out for your death, regardless of cause, PLUS a benefit for an accidental death.
Alternatives to an Accidental Death Benefit Rider
There are many riders you can add to an insurance policy to increase your benefits. Here are some common alternatives to an accidental death benefit rider, or consider adding these to an accidental death benefit rider for even more comprehensive coverage:
ACCELERATED BENEFIT RIDERS
Unlike an accidental death benefit rider, which pays out to your beneficiary in the event you die in an accident, accelerated benefit riders allow you access your insurance policy’s benefits while you’re still living. The most common accelerated benefit riders are:
- Terminal, critical and chronic illness riders, which pay out a portion of your death benefit to you if you’re diagnosed with a terminal, critical, or chronic illness
- Waiver of premium for disability rider, which suspends your premium payments in the event you become disabled (premiums are paid for by your insurance company)
- Long-term care (LTC) insurance rider, which pays a benefit in the event you need long-term care not covered by medical insurance, like for a nursing home or home hospice care
Because many of the aforementioned riders pull a portion of the policy’s death benefit for your own use while living, it can reduce the overall benefit paid out to your beneficiary when you pass away.
Speak with a Wealth Strategist to better understand the financial implications of various insurance riders; we can help you customize the best policy and riders to fit your family’s needs.
TERM CONVERSION RIDER
If you can’t afford whole life insurance now, but would like the guaranteed growth and tax-advantages it offers in the future, adding a term conversion rider to your term life insurance policies allows you to convert it to whole life insurance at a later date without the need for an additional medical exam. This means you can lock in a great premium rate and enjoy the guaranteed benefits of a whole life insurance policy once your finances are able to support it.
Whole life insurance accumulates cash value, which can be used as a living benefit. It also earns dividends which can go toward purchasing more insurance, raising the overall death benefit. It’s investment-like features help accumulate a greater death benefit for your family over time and can be an ideal way to protect your family’s assets and pass down generational wealth.
GUARANTEED INSURABILITY RIDER
Another way to increase the payout to your beneficiary is by adding a guaranteed insurability rider. This rider allows you to up your insurance coverage at predetermined intervals without a medical exam. It can be an efficient way to protect your family as your own income increases throughout your career and as your family’s insurance needs change, like for events such as marriage, the birth of a child, buying a home, or children starting college.
How to Add an Accidental Death Benefit Rider
The accidental death benefit rider is one of several useful riders to consider adding to your insurance policy and can be a popular and useful addition to your life insurance coverage. If you’re young or still accumulating wealth, it’s one of several smart ways to customize your insurance policy to better meet you and your family’s needs.
In most cases, an ADB rider must be purchased at the same time you purchase a life insurance policy, whether it’s a term policy or whole life. You don’t need a medical exam to qualify for an ADB rider, but you may need a medical exam to qualify for your term or whole life insurance policy.
For more information on the accidental death benefit rider, and to see an illustration of how it could increase the face value of your insurance policy, schedule a free consultation with a Wealth Strategist at Paradigm Life. We work with the nation’s top-rated mutual insurance companies and can help you find an affordable policy customized with the best riders for your financial situation.