Are all life insurance benefits the same? I guess the best way to answer that question would be to ask another question. Are all motor vehicles the same? While all motor vehicles have wheels and an engine, there is a massive difference between a BMW and a VW Beetle. Granted, fundamentally all motor vehicles serve the same purpose (to get you from point A to point B) but the difference is in the detail. Wouldn’t you agree? The same could be said for life insurance benefits. While designed to serve the same purpose (pay out a lump sum of capital on the death of the insured life), life insurance benefits do differ. Again, the difference is in the detail and in this blog post we are going to look a little more closely at an accidental death life insurance benefit. What are the pros and cons of owning a life insurance benefit like this?
So what is the major difference between an accidental death benefit and a traditional life insurance benefit?
No prizes for guessing right. An accidental death life insurance benefit will only pay out if the life insured dies as a result of an accident. That means no pay-out if the insured dies as a result of natural causes.
Hold on a second Brendan. Give me an example of how this would actually work at claim stage.
Example:
John Blog has an accidental death life insurance policy in place. He is insured for R1 mil and while driving home after work on a Friday afternoon he is involved in a car accident and passes away. Will his wife get paid out? The answer is yes. His death was a result of an accident, so in terms of the policy wording it’s a valid claim. If John had passed away from natural causes like a heart attack his claim would not be entertained. Why? His death simply was a result of natural causes.
Policy Wording
Let’s have a look at a life insurer’s policy wording. (Altrisk’s Accidental Death Benefit)
“Accidental Death” shall mean death resulting directly and independently of all other causes from bodily injury caused solely by external, violent and accidental means.”
What is clear in the policy wording is that death must be independent of all other causes and accident related. So if we look back at my example with John Blog above, had he suffered a heart attack and then crashed his car, the insurer wouldn’t entertain the claim, because even though he was involved in a car wreck (an accident), the nature of his death was natural (heart attack).
Why would you take out an accidental death life insurance benefit ?
I can think of three reasons..
Firstly the premiums are far cheaper than a traditional life insurance benefit. It’s easy to understand why. It’s because the life insurer is taking on less risk by only covering your death if it’s accident related. A traditional life insurance benefit covers you for death as a result of natural or unnatural causes and would therefore be more expensive. Don’t believe me?
Let’s have a quick look at the difference in premium. I did a quote on myself keeping all the underwriting information exactly the same.
Traditional Life Benefit R1 000 000 cover – R224.73 per month
Accidental Death Life Benefit R1 000 000 cover – R97.95 per month
You can see that the accidental death benefit is far cheaper.
The second reason why you would take out an accidental death life insurance benefit is because you might be at a higher risk of dying as a result of an accident than the average person out there. Let’s assume that you are driving a truck 8 hours a day, it’s fair to say that the chances of you passing away in a car accident are higher than a desk jockey like myself (who spends most of his day behind my PC with the phone glued to his ear).
Lastly, you might not qualify for a traditional life insurance benefit based on your health. Remember that all life insurers underwrite their risk (look at you as a risk and decide if they will offer you the cover or not). If the life insurance underwriters are not keen to offer you traditional life cover based on your health, you might have no alternative but to take up an accidental death life insurance benefit only.
What is the downside in taking out an accidental death life insurance benefit?
It’s a biggie in my opinion. If you pass away from natural causes you can’t claim. In my opinion it’s always better to look at a traditional life insurance benefit that covers you for both eventualities. Death as a result of natural or unnatural causes.
That being said, the accidental death life insurance benefit has its place and if you can’t get fully underwritten (for a traditional life insurance benefit) or you are involved in a high risk occupation this is certainly a very good life insurance option.
Until next time when I will be discussing another life insurance benefit “Modified Death Benefit”
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Kind regards,
The InsuranceFundi Team
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