This is part seven in a series of articles explaining the various types of life insurance products. To start at the beginning please click here.
Accidental death life insurance only pays the death benefit when the insured dies from accidental causes. The causes of death that the company covers and excludes are listed in the policy. The life insurance company is also supposed to list the covered and excluded causes of death in the marketing materials, but companies have gotten in trouble in the past for not being very upfront. Some companies have even tried to hide that their insurance only pays for accidental deaths so be sure and read the fine print when reading through marketing materials.
Accidental death life insurance is sold both as a stand-alone product and as a rider attached to regular life insurance policy. It is much cheaper than regular life insurance. This is partially because the chances of you dying in an accident are much lower. Also the insurance company has very little underwriting cost because your health status does not really affect your likelihood of getting in an accident. You should easily be able to get $100,000 of accidental death life insurance for only a few dollars per month if it is attached as a rider to another policy.
I am not really convinced one way or the other as to whether accidental death life insurance is a good purchase. I think it is a bad idea to only own accidental death insurance when your family is counting on that income when you die. Just because you are in good health now and you feel that the only way you could possibly die is by accident does not mean that you won’t get sick in the coming years. Actually, if you feel really healthy, then you should be buying regular life insurance because your premiums will be lower.
There is an argument to be made for attaching some accidental death coverage to your regular life insurance policy. If you die suddenly and unexpectedly rather than from an extended illness, then the extra insurance may be necessary since you will have less time to get your affairs in order. Also, since you are attaching it to another policy, there is very little additional marketing cost to the life insurance company and so it should be relatively inexpensive.
Wednesday, January 16, 2008
Accidental Death Life Insurance Explanation
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3 comments:
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I agree with you, as long as agents completely explain the different between accident policies and regular life insurance. I remember one appt where the client really did not want to meet. They were insured with 6 life policies. During the review they were alarmed to find that 5 were accident only policies.
Wow, 5 accidental death policies! Crazy!
There are situations where a person might purchase several regular life insurance policies. For example, you might want to purchase a $100,000 to replace your income if you die. Then you get a promotion 5 years later and you need another $100,000. If you got really great rates when you were younger you might be better off keeping the cheaper policy and just purchasing another $100,000 rather than cancelling the original policy and purchasing a $200,000 policy. I know people that have several layers of coverage. They'll do the same thing on the backend. When they need less coverage they can just lapse off one of their policies.
Now for accidental death insurance the cost usually doesn't fluctuate much with age. You would normally be better off just having one policy for the total amount you need to avoid paying multiple policy fees and the extra work it would take to keep up with multiple policies.
Yes, it is a shame that there are agents out there that convince people to buy life insurance products that they don't need, when there are products that they do need.
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