Double Indemnity
What Does Double Indemnity Mean?
Double indemnity is a clause in a life insurance policy that stipulates the insurance company will pay twice the amount specified in the standard life insurance contract if the insured’s death results from an accident.
Most life insurance providers define an accidental death as one that occurs specifically due to an accident, excluding deaths from medical conditions or natural causes. Accidental deaths can include drowning, car accidents, murder, or incidents involving machinery. However, deaths resulting from suicide, murder by the beneficiary, acts of war, negligence (such as not wearing a seatbelt), or extreme activities (like skydiving or bungee jumping) are not considered accidental.
On average, accidental deaths account for less than 5% of all deaths in North America, making this coverage relatively inexpensive. However, individuals in high-risk occupations may find that double indemnity clauses are unavailable, or the insurance provider may impose a premium surcharge for this coverage based on the occupation. This coverage can be added to standard life insurance contracts, group life insurance contracts, travel insurance contracts, and others.
Insuranceopedia Explains Double Indemnity
Double indemnity is derived from the term indemnity. In insurance, indemnity refers to the obligation of one party (the insurance company) to provide financial compensation or protection to another party (the insured) after a loss has occurred. When a client signs an insurance contract, the insurance company promises to indemnify that person in exchange for the premium paid. For instance, if an individual passes away from a heart attack (a health condition), the life insurance company will indemnify the insured’s family by providing the agreed-upon payout specified in the life insurance contract. If the death is accidental and the appropriate clause is included in the insurance contract, the insurance company will provide double indemnity—essentially double the value of the standard contract payout to the family.
Life insurance providers may offer double indemnity when the insured adds accidental death and dismemberment (AD&D) coverage to a standard life insurance policy. This coverage pays out the full sum of insurance in the event of death or if more than one limb or eye is lost. The clause may also include varying levels of coverage depending on the nature of the loss or injury. For example, with AD&D coverage included in the contract, some life insurance providers will pay out half the total sum of life insurance if one member (limb or eye) is lost. This type of indemnity is referred to as a living benefit.
To qualify for double indemnity under a life insurance policy, it must be proven that the death was accidental. Depending on the circumstances of the death, this may be immediately apparent (as in cases of murder or car accidents); however, the insurance company will still require medical records and autopsy reports to substantiate that the death was indeed accidental.
