Is There a Difference Between Life Insurance and Accidental Death Insurance?

Life insurance pays out in the event of the policyholder's death. If the policyholder dies within the time frame set out by the insurance policy, their beneficiaries will receive the death benefit. Life insurance policies can be purchased for certain terms or a lifetime and for varying death benefits. 

There are many types of life insurance products, but all are based on the three standard types:

• Term insurance: This is purchased for periods from one year to thirty years. At the end of the term, the premium increases if the insured wants to continue the policy. Like permanent insurance, insurance carriers offer many types of riders so that the policy can meet the specific needs of the insured.

• Whole life insurance: This is considered permanent insurance, since the policyholder does not intend to ever let the policy lapse. The premiums for the policyholder’s entire life expectancy are calculated and broken down into monthly or annual payments. The premium is set when the policy is issued and will never increase during the life of the policy.

• Universal life insurance: This type of policy, although considered permanent insurance, is actually a term policy with an annuity attached, acting as a cash account. A UL policy can be set up to run for the lifetime of the insured by using the cash account combined with the premium to keep the policy in force.

Life insurance rates are based on different underwriting factors, and there are two that affect the policy rates the most: age and health of the applicant when the policy is purchased.

There are a few main differences between life insurance and AD&D insurance.

Life insurance typically provides more coverage than AD&D insurance. Life insurance covers instances of death resulting from illnesses or natural causes, which AD&D insurance does not. Term life insurance is costlier than AD&D insurance, but covers accidents as well.

In the first two years of a life insurance contract, two things can allow the insurer to deny a claim:

• Suicide. If the death of the insured is determined to be the result of suicide, the claim will be denied.

• Misrepresentation. In most states, the first two years of an insurance contract are known as the contestability period. If the insured dies during that period, the insurance carrier is allowed to investigate the policy application for omissions or misrepresentations. If either is found and proven, the carrier will return the premiums paid and deny the death claim.

AD&D insurance is helpful supplemental insurance that is sometimes available through employers. It will cover deaths resulting from many vocations or hobbies that standard life insurance will not cover, such as skydiving and scuba diving, but the policy typically excludes coverage if the death results from drug abuse, intoxication, or any illegal activity. AD&D insurance does not require a medical exam for policyholders, and the insurance premium costs are lower because AD&D insurance has a very low historical mortality rate.

Individuals with uninsurable medical conditions may find that AD&D insurance is the only kind of life insurance policy they can take out, unless they elect to pay very high premiums for "guaranteed issue" whole life insurance.