There are some employee benefits you hope your employees are able to take full advantage and others you hope are never needed. Accidental death and dismemberment (AD&D) insurance falls into the latter category. Providing for an employee, or their family, should a devastating tragedy occur is a rather inexpensive benefit employers of all sizes can offer that can help bolster their compensation packages.
What is accidental death and dismemberment insurance (AD&D)?
Accidental death and dismemberment insurance is insurance coverage similar to that of life insurance. It covers an employee in the event of an accidental death, or an accidental loss of use or function of a body part (e.g., arms, legs, eyesight, speech, hearing). AD&D does not cover deaths caused by existing medical conditions; they only cover a loss that occurs due to an unforeseen accident, typically in extreme scenarios of death and dismemberment.
Accidental death and dismemberment insurance is commonly used as a supplement to a life insurance policy and can be referred to as a “double indemnity” rider, meaning the beneficiary would receive benefits from both the AD&D and life insurance policies if the insured employee dies in an accident.
“AD&D is mostly considered ‘supplementary’ to a major comprehensive health insurance plan, but it can also come bundled into your benefits or even as a part of your health or life insurance policy,” Noor Ali, licensed health insurance advisor and owner of Dr. Noor Healthcare Advisor, told business.com.
Although accidental death and dismemberment insurance should be considered supplementary insurance, not a replacement for life or health insurance, it can be purchased as a standalone policy. In fact, if an employee is rejected for traditional life insurance, they may want to consider signing up for AD&D as an alternative safety net for them and their family.
“Since AD&D policies don’t require a medical exam, they are easy to qualify for,” said Chris Abrams, licensed insurance agent and founder of Abrams Insurance Solutions. “They are also inexpensive, as rates are typically much lower than life insurance.” [Read related article: Best Liability Insurance Providers]
Workers’ comp vs. AD&D
Workers’ compensation, also known as workers’ comp, is similar to AD&D insurance in the sense that it covers an employee in the event of an accident; however, the injury or illness must be work-related, whereas AD&D insurance offers coverage regardless of location. Additionally, workers’ comp will cover an employee for a work-related injury or illness regardless of who was at fault for the incident (e.g., the employee, the employer, co-workers, customers).
AD&D is a “nice to have” benefit, but workers’ comp is essential. Nearly every employer is required by law to provide workers’ comp to their employees, and it is useful for protecting employers against litigation.
What does AD&D cover?
Accidental death and dismemberment insurance is somewhat self-explanatory in what it covers: payment for sudden accidents that lead to death or dismemberment.
“Policyholders get lump-sum payments in the event of an accident-related fatality, paralysis, or qualifying injury,” said Abrams. “Qualifying injuries refer to the loss of a limb or body function, such as vision, hearing, or speech.”
Abrams said these policies provide round-the-clock coverage, since AD&D-related accidents can happen any time or place. However, there are a few requirements and caveats to take note of. AD&D policies will not cover death or dismemberment that occurs due to a medical condition, and Ali said the benefit may also not be disbursed if death occurred while the employee was committing a felony.
Additionally, AD&D policies require qualifying injuries to be within a specified timeline of an accident to receive benefits, and they have guidelines for payout amount due to the severity of death or injury. An accidental death would typically qualify for the whole “face amount” of your AD&D coverage, but a qualifying injury would only pay out a percentage based on its severity (e.g., 25% payout for loss of fingers, 50% payout for loss of one eye or hand, 100% payout for loss of two eyes or limbs).
“For example, you may have a policy maximum fixed payout of $50,00 for accidental death, loss of eyesight in both eyes or loss of hearing in both ears or loss of both limbs,” said Ali. “However, if you only lose eyesight in one eye, or lose only one limb, only 50% of the maximum benefit will be paid out, so only $25,00 for loss of sight in one eye or loss of hearing in one ear.”
Since AD&D insurance policies can be complicated, Abrams recommends employers provide employees with continued education and other services so that they fully understand the benefits and requirements of this type of coverage.
Why you should offer AD&D to employees
Although businesses are not required to offer AD&D insurance, it can sometimes be automatically bundled with their group life insurance policy. Regardless, offering AD&D insurance can be beneficial to small businesses and their employees.
Benefits for employers
Accidental death and dismemberment insurance is a great way to create a comprehensive employee benefits package, which can help attract and retain top talent. Employees will likely appreciate the voluntary option for additional coverage, which can lead to employee peace of mind and improved employee morale. In the unfortunate circumstance that an employee must use the coverage, they will be grateful to have the coverage, leading to feelings of goodwill towards the company.
“This can lead to employee retention and increased credibility on behalf of the employer for offering coverage during a period of trauma,” said Ali. “Families (beneficiaries) of the patient will also harbor feelings of gratitude towards their employer.”
One of the biggest benefits for employers is that AD&D is not very expensive. Small businesses are able to reap the benefits of creating a competitive insurance package at an affordable rate.
“AD&D can make a benefits package competitive without breaking the bank,” said Abrams. “AD&D insurance has lower rates than other insurance offerings and is seen as a low-cost coverage option.”
Benefits for employees
AD&D insurance is a great option for an employee’s peace of mind. Instead of worrying about what might happen after an unfortunate event, an employee can rest easy knowing that they will be covered. If they do have to use the coverage, it will serve as a safety net to help them during the recovery process.
“It can help to prevent medical bankruptcy, and it can offer financial security for the employee’s family,” said Ali. “AD&D benefits can also offer the freedom of flexibility to evaluate career directions and options while the patient recovers from a dismemberment.”
Additionally, AD&D is a great supplemental policy for employees to gain a greater breadth of insurance coverage for a covered accident.
“Since workers’ compensation only covers work-related injuries, AD&D is a way to protect employees from accidents no matter the location,” said Abrams. “Many policies also allow employees to extend the coverage to their families.”