Is an accident covered in term insurance? [Ultimate Guide]

Is an accident covered in term insurance

Is an accident covered in term insurance? Want to jump right to the answer? Then yes, term insurance covers accidental death. But there are a few clauses. Like when the death is due to some adventure or motorsports, term insurance will not cover you. If you are involved in a crime scene and death occurs while escaping, you will not get the payout. There are many other clauses that state when the policy will cover accidental death.

This article covers everything related to accidental insurance and term insurance. What are the benefits of each of them, and why should you opt for them. Lastly, we will talk about what coverage you should take to maximize the benefit to your family. In short, it is a complete guide on, is an accident covered in term insurance.


What is term insurance?

Term insurance is an elementary plan and useful too. A term plan offers a death benefit if the insured dies within the insured span. In simple words, people take a term plan for 5, 10, 20, or 30 years. If the insured person dies within this time, then his family gets the insured sum. No ifs and buts are there. If you take term policy, there are high chances that you will get paid out. So, now, if you ask is an accident covered in term insurance, then yes, it is.

This sum of money helps the family to survive the odds. The company can pay out the money in installments or lump sum.

The best thing about term insurance is that it is value for money. Term insurance has the lowest premiums and the most extensive protection. However, there are no savings in this policy. Nor does it have any maturity benefit. It merely has a payout if the insurer dies.

Therefore, term insurance is the best deal if you can be a bit disciplined with your savings. Then you will have savings and the best payout. This way, you can have the best of both the worlds.

Also read: A guide to term insurance for senior citizens


Types Of Term Life Insurance Plans?

People usually take term insurance for such a term until they feel their dependants no more depend on them. For example, until their children get jobs or until the insured retires.

There are two types of term insurance policies:

  1. Medically underwritten term insurance
  2. Simplified Issue Term Insurance


#1: Medically Underwritten Term Insurance

Medically underwritten term insurance is the cheapest and most affordable plan. It requires you to take up a medical examination. Although some insurance companies allow a handful of applications to pass without medical tests. This waiver depends on the answers to the questions in the application form.

The application assesses your age, lifestyle changes, and personal and family health history. The insurance company does this to get an idea about the risk factor involved with you. And this risk factor helps conclude the premium.


#2: Simplified Issue term Insurance

These policies do not require a medical examination. Thus, the risk associated with them is higher. And hence, the premiums associated with this policy is also more significant.

However, these policies require the applicant to fill a questionnaire with a few health-related questions.

But there is a drawback with this policy, which is the coverage amount. The medically underwritten policy has a coverage amount from thousands to many millions. However, a simplified issue plan has a relatively small coverage of $500,000 or less.


What is accidental death insurance?

Accidental death insurance is usually a rider to life insurance and other policies. In simple words, if somebody dies due to an accident, this rider will cover you. But the highlight is that the payout of this rider is in addition to the base policy.

Let us understand this with an example:

Let’s say that a good health man buys a life insurance policy with a payout of $1,000,000. He also purchased an accidental death rider for $500,000. If the man dies of a health issue like a heart attack, the man will get payout only due to the base life insurance policy. The company will not pay for the accidental death rider in this case.

But if the man dies in a car crash, he gets paid $1,500,000 because both the base policy and rider are applicable.

So, key learnings from the above example are:

  1. The term insurance policy pays your family if the death occurs. Now, whether it is due to an accident or health issue, it is not a problem. If you have the policy, you will get paid.
  2. The accidental death rider is paid in addition to the base policy. Thus it is a significant saving on the premiums paid towards the policy. A rider comes at a cost way lesser than the base policy. However, the payout is generous.
  3. So, according to us, taking an accidental death rider is a profitable deal.


Types Of Accidental Death Benefit Plans

Accidental death benefit plans are of four major types. They are as follows:


#1: Group Life Supplement

This plan is usually offered as a supplement to group life insurance policies—for example, your employer’s group life insurance policies have an accidental death policy as a supplement. The payout is usually the same as the group life benefit.


#2: Voluntary

Sometimes your employer does not pay the premiums for an accidental benefit plan. Instead, the plan is an optional pick for the employees. If they want to take it up, they can. But the premiums are paid by the employees only. This plan covers employees of any accidents that occur on or off work.


#3: Travel Accident

This plan is for those that travel a lot on work. It is also a supplemental plan. And unlike the voluntary plan, this one is paid out by the employer himself.


#4: Dependants

The accidental death benefit plans do not always cover dependants. Thus, this one covers the dependants as well.


Important Points To Know

Here are a few points you should be aware of before you enter into a contract.

  1. The accidental death benefit pays you only if the death occurs due to an accident. The accident can be a car crash, drowning, choking, or any such event.
  2. Also, the death should occur within a specific period after the unfortunate accident occurs.
  3. The family does not suffer only in death but also due to partial or total loss of limbs. In such cases, some policies offer dismemberment cover too. The rider is called accidental death and dismemberment insurance (AD&D).
  4. The insured will also not be paid if the death occurs due to illegal activity like you die due to drunk driving.
  5. The insurance will also not cover you if the insured dies due to an act of war or terrorism.
  6. This policy also does not cover any fatal accidents caused during surgery, mental or physical illness.
  7. Lastly, the insurance will not cover deaths due to any hazardous activity like bungee jumping, motorsports, etc.

Thus, any death that happens due to legitimate reasons is considered and paid out for.


A Comparison Between Accidental Death Plan And Term Insurance

Both the policies offer death benefits. But, there are a few differences which will help you decide whether to opt for them or not. Let’s start:

#1: Policy Benefits

A term policy pays out if the insured dies within a set time. And the highlight is that it does not matter whether the insured dies of an accident or a natural death. Is an accident covered in term insurance? Yes! They pay the nominee irrespective of the reason of death.

On the other hand, an accidental death policy pays you only if the reason for death is an accident.

For example, if a person dies due to drowning, then his nominee will get paid by the accidental death policy and life insurance. But if the same person dies due to natural death, the nominee will get only the life insurance benefit.


#2: Premium

Both the policies differ in charging the premiums. Term life policy sets the premium based on age, health, and other perspectives. For example, the companies will charge a young woman with good health a lesser premium than one with bad health.

On the other hand, the accidental death policy charges the premium according to the risk at work. For example, a miner will have a higher premium than a software engineer simply because a miner is at a higher risk than a software engineer.

Another point to note here is that the premium amount is almost the same for both the policies. Explaining with an example, if you buy a life insurance policy and an accidental death policy, you will have to pay, say, $30 each month, given that the cover is equal. Like, if both the policies have a cover of $500,000 each.

Also read: Here is the 5 best US auto Insurance companies list


Why Should You Opt For Accidental Death Insurance?

The highlight of this policy is that it does not require any medical underwriting. Thus, those who have not been able to get life insurance due to some health problem can quickly get this one. Although the accidental death policy only offers coverage on accidents, something is better than nothing. Considering that accidents are the third largest cause of death in the United States, this is not bad.

Another reason you should opt for an accidental death policy is the low premiums compared to the payout. Thus, those of us on a budget can also go for this policy. However, a point to know here is that this policy will only pay after the accident occurs.

Here is a small trick to be doubly sure about the price you pay for the premium. Just compare it with the premium you need to pay for term insurance.

Do check the following points before you settle for a policy:

  1. How much coverage you are getting: You should know the coverage. Like, whether it includes dismemberment or not.
  2. How much premium you will pay for this coverage: Premium increases with coverage. So, keep in mind that you only cover what you may need. Weight the premium to that of term insurance. Too much or too less premium, both are unnecessary trouble.
  3. The policy tenure: Keep in mind you will not be covered once the policy tenure expires.
  4. The exclusions of the policy: Considering an example, the companies do not include accidental deaths due to wrong surgery in this policy. There are many such exclusions. You may know what all is not covered.


Which Policy Will Maximize Your Benefit?

Well, there is no straight answer to this question. It vastly differs from person to person. Thus, we have divided the answer into three segments:


#1: You Take Only Accidental Death Policy

This policy is a high-risk zone. This policy will only cover accidental deaths. So, if the death occurs due to any other reason, you will not get the death benefit.

It is best to take this policy along with the term insurance policy.

But if your budget is low and you are not getting the medically underwritten policy, you can go for this policy. This policy is also affordable, like a medical term insurance policy. And something is better than nothing.


#2: You Take Only Term Insurance Policy

Term insurance is a must-have policy for everybody as it pays you almost every time. It is excellent security for your family. And the best part? It comes at really affordable rates. And is an accident covered in term insurance? Definitely, yes.


#3: You Take Both Term Insurance And Accidental Death Policy

This combination is ideal, but still, your working environment also needs to be considered. A software engineer may not need accidental death insurance as much as a miner. Thus, if you are not inclined to spend an increased premium, go for only term insurance.

However, if you work in a risky environment, you must consider both accidental and term insurance. Accidental death insurance comes at a similar premium to term insurance. Thus, if need be, do go for both.

The best part is that you will get the death benefit from both the policies if you buy both. Given the death occurs due to an accident.

So, this was all in our guide about is an accident covered in term insurance. We hope you liked it and found it useful. In case you have a doubt, please comment below in the comments section.