Chapter 2, Part 3: Accidental Death & Dismemberment (AD&D)

Pure accident insurance - pays ONLY for accidental losses, never for illness

Start Here: 5 Things You MUST Know

1

Principal Sum = full face amount (paid for accidental death). Capital Sum = percentage (paid for dismemberment)

2

AD&D is pure accident insurance - it NEVER pays for illness, disease, or natural causes

3

Death must occur within 90 days of the accident to be covered

4

Double indemnity = 2x face amount; Triple indemnity = 3x face amount for accidental death

5

Limited Risk = specific circumstances only (travel). Special Risk = unusual risks not normally covered

1. What is AD&D Insurance?

Accidental Death and Dismemberment (AD&D) is pure accident insurance. It can be purchased as a standalone policy or added as a rider to a life or health insurance policy. It is most commonly found in group life and health plans offered by employers.

The ONE Rule That Defines AD&D

AD&D ONLY pays for accidental losses. Heart attack? Not covered. Cancer? Not covered. Stroke? Not covered. The loss MUST be caused by an accident, and death must occur within 90 days of the accident.

AD&D PAYS FOR

  • - Death from car accident
  • - Loss of limb in workplace accident
  • - Loss of sight from accidental injury
  • - Fatal fall from a ladder
  • - Drowning

AD&D DOES NOT PAY FOR

  • - Death from heart disease
  • - Death from cancer
  • - Death from stroke or natural causes
  • - Illness-related amputations (diabetes)
  • - Death more than 90 days after accident

Real-World Scenario: Two Employees, Same Policy

The Setup: A company provides $100,000 group AD&D coverage to all employees. Employee A is killed in a car accident on his commute. Employee B dies of a heart attack at his desk.

What Happens: Both families file AD&D claims with the employer's insurance company.

The Result: Employee A's family receives the full $100,000 - his death was accidental. Employee B's family receives NOTHING from the AD&D policy - a heart attack is a medical condition, not an accident. This is exactly why AD&D is not a substitute for life insurance. Employee B's family would only be covered if the company also had a separate group life policy.

2. Principal Sum vs. Capital Sum

These two terms are the foundation of AD&D benefits. The exam will test you on which losses get which amount.

Principal Sum

The full face amount of the policy. This is the maximum the policy will ever pay.

Paid for:

Accidental death

Capital Sum

A percentage of the principal sum. The amount varies by the type and severity of loss.

Paid for:

Dismemberment (loss of limbs) and loss of sight

AD&D Benefit Schedule (Based on $100,000 Principal Sum)

Type of Loss Percentage Benefit Amount
Accidental Death 100% (Principal Sum) $100,000
Loss of both eyes (sight) 100% (Full Principal) $100,000
Loss of 2 or more limbs 100% (Full Principal) $100,000
Loss of one hand 50% (Capital Sum) $50,000
Loss of one foot 50% (Capital Sum) $50,000
Loss of sight in one eye 50% (Capital Sum) $50,000

Memory Trick: "Principal = Primary, Capital = Cut"

Principal Sum is the primary (full) amount - paid when the worst happens (death). Capital Sum is a cut of the principal - a percentage paid when a body part is lost. Think: "Capital punishment cuts something off."

Real-World Scenario: Construction Worker's AD&D Claim

The Setup: Marcus has a $200,000 AD&D policy through his construction company. A crane accident crushes his left hand, which must be amputated.

What Happens: Marcus files an AD&D claim for loss of one hand.

The Result: Marcus receives $100,000 (50% of the $200,000 principal sum = capital sum for one hand). If Marcus had lost BOTH hands, he would have received the full $200,000 principal sum (100%). If Marcus had died in the accident, his beneficiary would receive the full $200,000 principal sum.

3. Double and Triple Indemnity

When AD&D is added as a rider to a life insurance policy, it can multiply the death benefit for accidental deaths. These riders are often the most affordable way to increase the payout for accidental death.

Double Indemnity

2x the face amount paid if death is caused by an accident.

Example: $100,000 life policy with double indemnity rider. Natural death = $100,000. Accidental death = $200,000.

Triple Indemnity

3x the face amount paid if death is caused by an accident.

Example: $100,000 life policy with triple indemnity rider. Natural death = $100,000. Accidental death = $300,000.

1x

Natural death (base policy)

2x

Double indemnity (accidental)

3x

Triple indemnity (accidental)

The 90-Day Rule

For the death to qualify as "accidental" under AD&D, the death must be caused by the accident AND occur within 90 days of the accident. If the insured survives 91+ days after the accident and then dies, the AD&D benefit is NOT paid (though the base life insurance still pays).

Real-World Scenario: The 90-Day Deadline

The Setup: Robert has a $250,000 life insurance policy with a double indemnity rider. He's in a serious car accident on March 1st and is hospitalized in critical condition.

What Happens: Scenario A: Robert dies on May 15th (75 days after the accident). Scenario B: Robert dies on June 15th (106 days after the accident).

The Result: Scenario A: Robert's beneficiary receives $500,000 (2x $250,000) because death occurred within 90 days of the accident. Scenario B: Robert's beneficiary receives only $250,000 (the base life insurance amount). The double indemnity does NOT apply because death occurred after the 90-day window. Same accident, different payout - just because of timing.

4. Limited Risk vs. Special Risk Policies

Not all AD&D policies cover every possible accident. Some are designed for very specific situations. Know the difference for the exam.

Limited Risk Policy

Benefits ONLY apply under specific, named circumstances. If the accident happens outside those circumstances, no coverage.

Most common example:

Travel Accident Policy - only pays if the accidental loss occurs during travel. If you're in a plane crash, covered. If you slip in your kitchen the day after your trip, not covered.

Special Risk Policy

Covers unusual or hazardous risks that a standard AD&D policy would normally exclude. These are custom-underwritten for high-risk situations.

Examples:

A racecar driver test-driving cars. A stunt performer doing movie scenes. A mountain climber on an expedition. Standard AD&D would exclude these - special risk covers them.

Real-World Scenario: The Business Traveler's AD&D

The Setup: Elena frequently flies for business. Her company provides a $500,000 Travel Accident Policy (limited risk AD&D) that covers losses during business travel only. She also has a personal $200,000 standard AD&D policy.

What Happens: Scenario A: Elena is in a taxi accident while traveling to a business meeting in Chicago. Scenario B: Elena is in a car accident driving to the grocery store on a Saturday.

The Result: Scenario A: Both policies pay. The travel policy pays because she was on a business trip ($500,000) and her standard AD&D pays ($200,000) = $700,000 total. Scenario B: Only the standard AD&D pays ($200,000). The travel policy does NOT pay because she wasn't traveling for business. Limited risk = limited circumstances.

Cheat Sheet

Print this page for quick reference

Principal Sum vs Capital Sum:

  • Principal Sum = FULL face amount (death)
  • Capital Sum = PERCENTAGE of principal (dismemberment)

100% (Full Principal) Paid For:

  • Accidental death
  • Loss of sight in BOTH eyes
  • Loss of 2+ limbs

50% (Capital Sum) Paid For:

  • Loss of one hand
  • Loss of one foot
  • Loss of sight in one eye

Key Numbers:

  • 90 days = death must occur within this
  • 2x = double indemnity
  • 3x = triple indemnity

Policy Types:

  • Limited Risk = specific circumstances (travel)
  • Special Risk = unusual hazards (racing)
  • Can be rider or standalone policy
  • Most common in group plans

Core Rule:

  • ONLY pays for ACCIDENTAL losses
  • NEVER pays for illness or disease
  • Not a substitute for life insurance

Exam Trap Alerts

1. Principal Sum vs. Capital Sum - Don't Mix Them Up!

Principal Sum = the FULL amount, paid for accidental death. Capital Sum = a percentage, paid for dismemberment. If the exam says "the insured lost a hand," the answer involves the CAPITAL sum, not the principal sum. Death = principal. Limb loss = capital.

2. Loss of Both Eyes = FULL Principal Sum (100%)

Losing sight in BOTH eyes pays the same as death - 100% of the principal sum. Losing sight in ONE eye pays 50% (capital sum). The exam may try to trick you by listing "loss of both eyes" alongside dismemberment options to see if you pick 50%.

3. The 90-Day Rule is Absolute

If the insured dies on day 91 after the accident, the AD&D benefit is NOT paid - even if the death was clearly caused by the accident. The base life insurance still pays, but the AD&D multiplier does not apply. Watch for scenarios where the exam gives you a death date just over 90 days.

4. AD&D is NOT a Substitute for Life Insurance

AD&D only pays for accidents. Since most deaths are from illness (heart disease, cancer, stroke), AD&D would pay nothing in those cases. If the exam asks about comprehensive death protection, the answer is life insurance, not AD&D.

5. Limited Risk vs. Special Risk - Know the Difference

Limited Risk = restricts WHEN coverage applies (specific circumstances like travel). Special Risk = EXPANDS what's covered (unusual hazards normally excluded). They go in opposite directions: limited narrows, special broadens. Travel accident = limited. Racecar driver = special.

Quick Reference Summary

Principal Sum

Full face amount - paid for accidental death

Capital Sum

Percentage of principal - paid for dismemberment

100% Payout

Death, both eyes, 2+ limbs

50% Payout

One hand, one foot, one eye

90-Day Rule

Death must occur within 90 days of accident

Double/Triple Indemnity

2x or 3x face amount for accidental death

Limited Risk

Specific circumstances only (e.g., travel)

Special Risk

Covers unusual hazards normally excluded

Pure Accident Only

Never pays for illness, disease, or natural death