When one thinks of accidental death and dismemberment insurance, a single, simple type of policy springs to mind.
While AD&D tends to be a very basic concept, it still comes in a variety of shapes, sizes and flavors. It can be a standalone policy, a rider, packaged with executive travel insurance among other forms. As part of a benefit package it can be a high-face amount, reasonably priced add-on to a term life insurance policy, part of the traditional travel package for employers with a large number of employees that travel both domestically and certainly internationally, or even a low face amount giveaway.
It remains a very popular benefit. Employees, many brokers, and insurance carriers are huge proponents of AD&D. Some, however, look at the concept and the probability of the policy or rider actually being utilized and feel substantially less enthusiastic.
The argument for AD&D is very straightforward. For starters, clients generally respond positively to it and like the idea, for example, of increasing their face amount if they die from an accident in a double indemnity policy. Second, the cost is usually very reasonable, which makes the perceived value a winning proposition in an employee’s view. And, honestly, accidents happen. People lose limbs or even their lives. And when they do, having this coverage sure will make a difference to the person or family of the policy holder. Lastly, it’s a money maker for carriers and brokers. The claims ratio for AD&D is very favorable.
The detractor’s argument boils down to the simple idea that infrequency of occurrences of death by accident, and certainly dismemberment from an accident, negate the value of the policy. In other words, no matter how affordable it is, they argue it’s a rip off. Their belief is those few dollars, especially in rough economic times, could be better spent making $40,000 to pay for gas or groceries.
To watch this argument play out is a fascinating exercise in observing the sausage making of creating an insurance policy. Several years ago, an insurance carrier rolled out a new life insurance product and the principals discussed the idea of adding accidental death coverage as a rider. Both the pro and con camps sat at the table. The head of marketing was the biggest proponent. What was surprising was the group of people who lined up against the idea of adding the rider as an option at all, which included the president of the worksite division, the actuary who designed the product, and the CMO’s No. 2.
You’d have thought it was safe to assume the actuary would be in favor since it would make his policy slightly more profitable. It would be a logical thought to think the president of the division who was responsible for the overall profitability of the worksite line would certainly want a low cost, almost guaranteed profit product to be included, and certainly the second in command in marketing would support it. However, they argued that they would never purchase the rider as it was highly unlikely to happen. Most people do not die from an accident.
The CMO calmly explained that the need for the rider for this policy rested on a couple of very simple premises. The CEO wasn’t the primary target for the policy, and the decisions that she would make are irrelevant as the average employee sees the value in the product. Also, all the competition had an AD&D rider that could be attached to the policy. If this company did not have the same, they would lose potential brokers and groups to a company that had a richer product.
In the end, the marketing argument won the day and the company added an optional accidental death rider. Interestingly, to keep it simple, they made it a double indemnity product, which just doubled the face amount of the term policy.
So what can we take away from this? Simple. If you as a broker don’t have some mechanism to offer AD&D coverage to your clients because you doubt its value, another broker will be bringing it to the table. And remember you aren’t always the target for the product. If you believe people should not spend money on this product, it’s imperative you make a strong argument as to why.