In this article, we wanted to take a moment and briefly describe the differences between a traditional term or whole life insurance policy and an accidental death policy.
Our intention will be…
To provide one with useful information that they can then use to determine what “kind” of policy might best meet their needs. That said, we should point out that we here at IBUSA do sell both traditional life insurance policies as well as accidental policies.
Which in our opinion…
Makes us uniquely qualified to honestly discuss these two types of products since at the end of the day, we don’t have a “vested” interest in which one you pick!
After you have finished our article, you will agree with us that we have tried our best to keep any personal opinions removed (or at least limited) within our discussion.
Without further ado, let’s dive right in!
What is the Difference Between Life Insurance and Accidental Death Insurance?
Since its probably safe to assume that most folks have a better understanding of how a traditional life insurance policy will work, we want to start off our discussion by first defining what an Accidental Death Policy actually is.
Along the way…
We’ll try and highlight how these “types” of policies will differ from true life insurance policies.
Accidental Death Policies are NOT life insurance policies.
The first thing that anyone who is considering purchasing an accidental death policy needs to understand is that an Accidental Death Policy is NOT a life insurance policy.
This is why you’re not likely to be asked any health-related questions when applying for one and why it isn’t even necessary for an individual to hold an insurance license to sell one.
This doesn’t mean that an accidental death policy isn’t a quality product, it just means that one shouldn’t confuse an Accidental Death Policy which will only provide your loved ones with a death benefit in the event that you die from an Accident with an traditional life insurance policy which WILL provide coverage in the event that you die from an Accident or a NATURAL cause of death.
Accidental Causes of Death vs Natural Causes of Death.
Here is where a lot of folks will get confused when trying to determine what an Accidental Death Policy will actually cover and what it won’t provide any protection for. So, let’s just take a moment and “generally” describe what an Accidental Death Policy is designed to do with the understanding that each insurance company that offers one of these “types” of products will generally have their own specific definition with regards to what constitutes an “accidental death”.
Accidental Death Defined:
Loosely speaking, an accidental death would be a death that is not cause by some type of disease.
Examples may include:
- Slip and fall accidents,
- Motor vehicle accidents,
- Victim of crime,
- Natural disasters,
What wouldn’t be considered an “accidental cause” of death would include:
Which means that if someone died as a result of a heart attack, their accidental death policy would not payout.
If someone owned a traditional life insurance policy and died from either an Accidental Cause of death or a Natural Cause of death, the policy in theory would pay out in full (certain exclusions may exist such as suicides and others within the first couple of years after a traditional policy is originated).
Which begs the question…
“If traditional life insurance policies cover both accidental causes of death and natural causes of death, why would anyone choose to purchase an Accidental Death Policy instead of a traditional term or whole life insurance policy?
Situations where Accidental Death Policies may make sense.
Now that we have a better understanding of the limitations of an Accidental Death policy let’s now take a moment and discuss four situations where it may make sense for someone to purchase one.
To supplement a traditional term or whole life insurance policy.
Sometimes folks who already have a traditional term or whole life insurance policy in place will take choose to supplement this coverage with an accidental death policy as a way of providing additional coverage to their family in the event that they do die from an accidental cause at a very affordable price tag.
This is because…
Accidental death policies tend to be much less expensive than traditional life insurance policies, particularly if your older or have already been diagnosed with some type of pre-existing medical condition.
Unable to qualify for traditional coverage.
Individuals who have large insurance need but aren’t able to qualify for a traditional term or whole life insurance policy or afford such a policy be able to afford one may find it useful to be able to purchase a more affordable accidental policy as one way to “potentially” protect their loved one if they die from an Accidental cause of death.
The only problem is…
These individuals need to be aware that they are only purchasing Accidental Death coverage and will not be covered in the event that they die of natural causes.
Useful as a “bridge” policy.
Some individuals may find that they either currently can’t qualify for a traditional life insurance policy or they simply can’t afford the coverage that they need right now.
In cases like these…
It may make sense to purchase an accidental death policy while they wait a few months or years until which time they may “become” eligible for traditional coverage, or they’re able to qualify for a more affordable rate for a traditional life insurance policy.
Situations, where something like this may occur, may include:
- Recent cancer survivors who need to remain in remission for a few years before being considered eligible for traditional coverage.
- Individuals who have recently stopped using drugs or abusing alcohol.
- Individuals who have recently been convicted of a felony.
- Individuals who have just recently quit smoking.
In cases like these, many folks will choose to purchase an accidental death policy until which time they can qualify for a more “encompassing” term or whole life insurance policy.
Addresses a real concern for an individual.
Sometimes people just want to purchase an accidental death policy and aren’t worried about dying from natural causes. An example of such a person might be someone who is in their 20’s, quite active, and doesn’t necessarily want to go through all the trouble of applying for a traditional life insurance policy.
Of folks that will commonly purchase an accidental death policy will be those who have qualified for a traditional insurance policy but due to some type of exclusion within their policy, they may not have the accidental death coverage they want or need. Examples may include recreational pilots who have an exclusion in their life insurance policy that states that if they dye while flying their own personal plane, their TRUE life insurance policy won’t payout.
In cases like these…
Having a supplemental accidental death policy makes sense! This is why, even though we firmly believe that a traditional life insurance policy is usually the more prudent way to go, we understand that there are times when an Accidental Death Policy can be a great fit!
And there you have it…
Our “best” attempt to describe how an accidental death policy differs from a traditional term or whole life insurance policy in a straight forward unbiased presentation. And hopefully, if you are currently considering whether or not an Accidental Death Policy is right for you, you now know you can always give us a call, and we’ll be more than happy to give you our unbiased opinion.