Some life insurance products pay a larger death benefit—perhaps double—if you die accidentally. The cost may be low or included. You seem to be getting good value, but are you really?
How can the insurance company pay more for accidental deaths?
Because they’re unlikely. If $250,000 of normal life insurance plus $250,000 for an accidental death costs less than $500,000 for a normal death, what’s going on? The insurance company is expecting fewer accidental deaths and passing some of the savings to you.
How many deaths are accidental?
In a sense, death is always accidental, whatever your age. Insurance companies use strict criteria—and the definition they put into the insurance contract prevails.
According to data from the Public Health Agency of Canada, here are the top 10 causes for all ages combined:
- Circulatory system diseases
- Respiratory system diseases
- Nervous system diseases
- Mental disorders
- Unintentional injuries (which we’ll call “accidents” here)
- Endocrine, nutrition & metabolic diseases
- Digestive system diseases
- Genitourinary diseases
- Infectious and parasitic diseases
Normal life insurance pays death benefits for all these causes and more. Isn’t that better if you want certainty?
Are you fooling yourself?
If your normal life coverage is $250,000, then $500,000 for an accidental death looks good. In your mind, how much insurance do you think you have? If it’s the larger amount, you may be fooling yourself—and remain underinsured.
Before deciding, look at a sample (“specimen”) policy contract and compare the restrictions for accidental death with a regular death.
Are benefits paid regardless of your age at death?
- Do benefit amounts decrease with age? (Example: coverage may reduce at age 65)
- When does coverage end? (Example: coverage may end when you’re 70)
- Must a claim be submitted within a specified period?
- Is anything paid for suicide? (Regular life insurance generally pays after the first two years)
- Are benefits paid if drugs or alcohol were used?
- Are the exclusions clear?
The restrictions may seem reasonable, but they reduce the likelihood of claim payments. Regular life insurance rarely has these limitations.
The worst choice
Some life insurance plans only pay for an accidental death. That means no benefit for most deaths!
What could you do instead?
If you need more life insurance, get more life insurance that pays regardless of the cause of death. Term life insurance is often very cost effective if you’re healthy.
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