Accidental Death Insurance: Why It’s Money Not Well Spent
An overwhelming majority of the financial products and services we cover here at MapleMoney are ones that I believe will benefit a large segment of readers. However, every once in a while, I feel a responsibility to point out a product that I believe is flawed, and so my message takes on a more cautious tone. This is one of those times.
Accidental death insurance is a product that is promoted heavily by insurance companies. On the surface, it would seem to be a worthwhile effort. After all, one of the most important rules of personal finance is having adequate insurance coverage. The problem with this type of insurance is that it’s expensive and completely unnecessary. I will expand on this train of thought, but first, let’s take a closer look at how accidental death insurance works.
What Is Accidental Death Insurance?
In short, accidental death insurance, also referred to as an Accidental Death Benefit, pays your beneficiary a lump sum of money if you pass away as a direct result of an accident. In most cases, Accidental Death is purchased as an add-on or rider to an existing term life insurance policy. The amount of coverage available ranges, but it’s often anywhere from $25,000 to $500,000.
List of Accidental Death Insurance Policies Available In Canada
To give you an idea of where you can buy accidental life insurance coverage in Canada, here is a list of some of the larger providers offering this coverage:
- The Co-operators Life Insurance
- Great-West Life Insurance
- Manulife Insurance
- Sun Life Go Accidental Insurance
- TD Accidental Death Insurance Plan
Accidental Death Insurance Exclusions
Most accidental death policies have a long list of exclusions, which would disqualify the insured person for coverage should their death be connected to anything on the list. In other words, your insurance may not be paid out if your death were directly or indirectly the result of any of the following:
- Military service
- Air Travel
- Operating a vehicle with a blood alcohol content level over the legal limit
- In the process of committing or attempting to commit a crime
- Ingesting a poisonous substance for any reason
- A dental or surgical procedure
- Death by infection
This is not an exhaustive list but is an example of some of the exclusions written into most insurance companies’ accidental death policies.
Accidental Death Insurance vs. Term Life Insurance
When you purchase term life insurance, you buy a specific amount of coverage for a specific time period. For example, you might purchase a $250,000 term policy for 10 years. At the end of the ten-year term, you can either allow the policy to expire, or it can be renewed (at a higher rate) without having to requalify. The beauty of term life insurance is that it’s incredibly cheap, especially if you are young and healthy. The other benefit is peace of mind knowing your loved ones will be covered for any cause of death.
As I pointed out earlier, accidental death insurance will only cover you in an accident. The cost may be higher than term insurance, or it may be about the same. If it’s cheaper, you’re paying too much for term insurance.
If you’re asking yourself, “why would I buy accidental death insurance when I could just buy more term life insurance?” you’re right. Why would you? Some insurance companies promote accidental death as an add-on to a term life policy. If you need more coverage, the best solution is to increase your existing term life policy or buy a separate one.
When Is Accidental Death Insurance Beneficial?
There is only one situation I can think of where it may be worthwhile to purchase an accidental death policy; if you’re unable to qualify for a term life insurance policy for health reasons.
The idea here is that bad insurance is better than no insurance at all. Because accidental death insurance doesn’t require evidence of insurability, i.e., medical underwriting, you may still qualify even if you’ve been turned down for term life.
If you find yourself in this situation, keep in mind that the policy will only cover you if you die in an accident, not if you pass away from cancer, heart attack, or natural causes.
Final Thoughts on Accidental Death Insurance
As you can see, I’m not a fan of accidental death insurance as a life insurance coverage solution. I don’t mean it as a slight against any insurance companies offering the product, but rather as a knock against the product itself. It’s a flawed product.
While there is always a chance that any one of us could die due to an accident, term insurance provides coverage for all situations, eliminating the need for accidental death coverage. As always, if you feel as though you don’t have adequate insurance coverage, I recommend that you consult with a professional who can properly assess your insurance needs, help you determine the right benefit amount and the right course of action.