Life Insurance: Are Accidental Death Clauses Necessary?

An accidental death clause is a provision you can add onto life insurance policies to ensure your beneficiaries receive a death benefit in excess of the original amount, so long as your demise come about due to a covered accident rather than natural causes (the conditions for each policy vary across providers, including the restrictions on which accidents are covered and the age of the policyholder).

While this clause sounds attractive, it’s important to assess your risk level before deciding whether it’s worth paying the additional premium for it.

Are Accidental Death Clauses Worth It?

With any addition to a life insurance policy, accidental death clauses come with an additional cost. Like return of premium riders, it increases the cost of monthly premiums by a percentage of the total coverage (see Is Life Insurance with Return of Premium Right for You? to learn more). The extent of the price hike also depends on whether your beneficiaries will receive double or triple indemnity following a valid claim.

To figure out whether the clause is worth your while, it’s important to place your personal risks in perspective. Statistics show that an average of 5 in every 100 deaths occur accidentally, which is not a large percentage at all. What’s more, even if a policyholder is one of the unfortunate 5% whose life ends in an accident, it might still not qualify for an accidental death claim, depending on the policy’s exclusions. Only a small fraction of the population, then, would ever benefit from an accidental death clause.

You should, however, factor in your lifestyle and whether it increases the probability of you dying due to an accident. If you, for example, work in a hazardous profession like construction or mining, the likelihood that an accident will end your life is higher than average. Another important variable is the amount of time you spend driving a motor vehicle. If your profession or leisure activities involve a lot of driving, an accidental death clause might be worth your while.

When Can You Claim Double or Triple Indemnity?

Before you start paying premiums on an insurance policy with an accidental death clause, be sure to know under what circumstances an accidental death claim could be filed. For instance, the death of the policyholder need not happen instantly at the time of the accident. In the fine print of your clause, you may read the term “proximate cause.”

Usually the insurance company will allow a death that occurs up to one or two years after the accident, so long as a physician determines that the accident was the proximate cause of the policyholder’s death. This fact must be stated in the policyholder’s death certificate, which the beneficiaries would present to the insurance company upon claiming indemnity.

The circumstances in a proximate cause claim can be complicated, as was shown in a landmark insurance case. A city sewer worker sustained lesions in his outer thigh as a result of an accident. He immediately sought treatment and was released from the hospital. Knowing full well that his wounds were not yet completely healed, he went back to work in the sewers.

As a result, the lesions on his thigh became infected and he subsequently died from multiple organ failure. It was determined that, although the cause of the lesions was the accident, the policyholder’s neglect in choosing to work despite his wounds not yet being fully healed was the proximate cause of his death. So, even though the accident and its resulting lesions were one of the causes that contributed to the death, the beneficiaries could not collect the double or triple indemnity stipulated in the accidental death clause.

Other exclusions include acts of suicide or hobbies, such as drag racing or skydiving, that involve the policyholder intentionally exposing themselves to the risk of dying by accident.

Marketing of Accidental Death Clauses: Be Wary

Over the past half-decade, accidental life insurance policies have become significantly cheaper due to the aggressive marketing strategies used by many companies. Some insurance companies have even stopped offering life insurance policies without accidental death clauses. The higher premiums they collect increases their revenues but it removes one of the policyholders’ options for reducing their insurance costs.

Moreover, not all insurance companies make an effort to educate the beneficiaries of life insurance policyholders on how to make claims. As a result, many indemnity payouts are left unclaimed (learn How to Collect a Life Insurance Payout).

Reputable insurance companies are usually proactive in ascertaining the facts surrounding cases of accidental death an advising the beneficiaries of the indemnity they’re entitled to. When choosing an insurance company, make sure they will provide this kind of care and service.

When selecting a policy, it pay to understand the circumstances that would render an accidental death claim invalid. And, as always, be sure to read the fine print.