Accidental death benefit (ADB) is a rider that pays out if you die in an accident. Here, accidental roughly means the opposite of ‘for medical reasons’ rather than the opposite of ‘on purpose’. To clarify further, accidental death benefit does not pay out for death due to medical reasons such as heart attack, cancer, or stroke.
Should you purchase accidental death benefit as a rider on your term policy? The answer is most likely no – it’s generally seen as counter to basic life insurance principles.
Lets say you determine that you need $100,000 of life insurance. That $100,000 is probably based on loss or expenses incurred at death. It is likely NOT dependent on how you died. And that’s the basic problem with ADB; you need life insurance because you’ve died, not based on ‘how’ you died. With ADB you could possibly pass away and the policy doesn’t pay out.
Worse, it’s not ‘possibly’ the policy won’t pay out – it’s ‘probably’ the policy won’t pay out. As I like to say (I am in insurance), we all die the same way – cancer, heart attack and stroke. The World Health Organization has shown that of the top 10 ways to die, 9 of them are medical – only one of them would qualify for accidental death. And that cause (Road death/injury) is a very distant 7th of the 10.
Emotionally we all think we’re going to die as the result of an accident; in a car accident or in a plane crash. But in practice that’s unlikely. You and I are probably going to die for medical reasons. And that makes ADB a poor bet, even if it fits with our emotional reaction to how me might pass.