Life Insurance vs. AD&D: What’s the Difference and Which Do You Need?

Life insurance and accidental death insurance (AD&D): Key differences

Life insurance and accidental death and dismemberment insurance (AD&D) are distinct types of policies, and there are some key differences to be aware of. Perhaps the most significant takeaway is that AD&D is incredibly limited, and traditional life insurance is a much better fit for most people. 

Life insurance vs. AD&D: How they work 

Life insurance

If you purchase life insurance coverage and die while the policy is active, your life insurance provider will provide a death benefit to your named beneficiary (or beneficiaries). Life insurance pays out whether you pass away from illness, accident, or another cause—though suicide is usually an exclusion for at least a certain period of time.

There are two types of life insurance coverage:

• Term life insurance provides financial protection for a set period. The beneficiary receives a lump sum death benefit only if the policyholder passes away within that time frame. Term life insurance coverage is typically very affordable, especially if you’re young and healthy.
• Permanent life insurance provides financial protection for your entire life and pays out no matter when you pass away, as long as the policy is active. These policies build cash value that you may be able to borrow against, but they are typically much more expensive than term policies.

We believe that term life insurance is typically the best choice for most Canadians. It offers you the flexibility to carry coverage when you have obligations like dependent children and a mortgage, and cancel it once your financial obligations subside.

AD&D

Accidental death and dismemberment coverage only pays out when injury or death occurs due to an accident; it doesn’t cover death for any other reason, like illness or natural causes.

You can purchase AD&D as a standalone policy, or you can add an AD&D rider to an existing life insurance policy. It has two parts:

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• Accidental death: Your beneficiary receives a tax-free, lump-sum payment if you die as a direct result of an accident.
• Dismemberment: You’ll receive a partial payout for qualifying injuries, such as losing a limb; losing vision, hearing, or speech; or being paralyzed. Policy terms and payouts vary, but the dismemberment must be the direct result of an accident.

When is AD&D a good idea?

Purchasing AD&D might be a good idea if you have a high-risk job or lifestyle—for example, if you work in construction, manufacturing, or law enforcement, or frequently travel by motorcycle.

AD&D could also be a useful addition to an existing life insurance policy, boosting the death benefit for your beneficiaries if you die in an accident.

When is life insurance a good idea?

If you have financial obligations, such as dependents or a mortgage, it’s a good idea to purchase life insurance. A life insurance policy protects your loved ones financially in case you pass away. It could cover:

• Living expenses, child care, education costs, and housing costs for dependents
• Shared debts, like a joint mortgage or loan
• Final expenses, like medical bills, cremation, or a funeral

For most people, a term life insurance policy is the best option. You can tailor your term length and coverage amounts to suit your current financial situation, and then amend it as needed. Term policies are typically very affordable, and once your financial obligations end, you can let your coverage lapse if you wish.

Life insurance vs. AD&D: Coverage comparison

Life insurance covers a much broader range of situations than AD&D. Your life insurance policy will pay the death benefit upon your passing for nearly any reason, but AD&D only pays out if your death is directly attributable to a covered accident.

Here’s an overview of what each type of insurance pays out for. 

^{* May depend on policy terms}

Remember: AD&D is not a replacement for life insurance. It’s best used as a supplementary coverage for people in risk-prone environments.

Life insurance vs. AD&D cost: Which one offers better value?

An AD&D policy is much cheaper than a life insurance policy—but that’s because it covers a lot less. Since AD&D only pays out in the case of serious injury or death resulting directly from an accident, your loved ones aren’t financially protected in any other scenario.

Life insurance tends to offer better value for your money. While your life insurance rates will vary depending on your age, health, coverage amounts, and type of policy (term coverage is much cheaper than a whole life insurance policy), life insurance offers substantially more protection for your beneficiaries.

To find the most affordable term life insurance premium, you can shop around and get quotes from multiple life insurance companies. PolicyMe offers some of the most affordable term life insurance quotes available.

Is accidental death insurance worth it?

Accidental death and dismemberment insurance may be worth it in certain situations. As noted above, if you have a high-risk job or lifestyle, or you want it as a supplement to your life insurance, AD&D might be a worthy consideration.

But the average Canadian needs life insurance far more than AD&D. It offers broader coverage and financial support after death from almost any cause, not just death resulting from an accident.

Can you have both life insurance and AD&D?

Yes, you can carry both a life insurance plan and AD&D coverage. That said, most people only require life insurance. Those in high-risk jobs may choose to purchase AD&D in addition to life insurance coverage. This way, their loved ones are protected financially if they die—but they’ll receive an extra payout if the death is the result of an accident.

FAQ: Accidental Death Insurance 101