4 Reasons to Decline Accidental Death and Dismemberment Insurance

by Jessica Sommerfield · 1 comment

death and dismemberment insurance
Companies of all kinds are always looking for ways to increase their revenue — and that includes financial institutions. Today, traditional banks are being forced to compete with a constant influx of financial technology (Fintech) companies, and their desperation for new income streams has led them to create unlikely alliances with insurance companies.

Over the last few years, my husband and I have received numerous letters from our credit union offering $1,000 of “free” accidental death and dismemberment (AD&D) insurance coverage. We never sent in the consent forms because it seemed rather odd, almost gimmicky, although the paperwork assured us it was a gesture of appreciation to us as loyal credit union members.

Recently I saw a question on Reddit about the legitimacy of these offers, and the varied responses got me thinking and researching on the topic. I found assurance that these offers aren’t usually scams — but I still won’t be signing up. Here are four reasons you might want to pitch these offers, too.

death insurance1. If you accept free coverage, your bank will try to upsell you on more coverage.

Offering $1,000 of free AD&D coverage to its loyal members doesn’t cost banks much — just a few cents per premium. In other words, it’s not actually that generous of them, it’s a common marketing ploy. These free policies are almost always followed up by attempts to upsell you, say, to $300,000 worth of coverage for “only” about $10 a month. If a bank only has to spend a few cents per premium and some advertising expenses to get you to upgrade to a heftier policy, selling insurance turns into a significant side income.

But what about the need for this type of insurance? You might not have AD&D coverage under your insurer, and $10 isn’t that much to spend for the peace of mind you (or your dependents) won’t be left with emergency medical or funeral expenses. This leads to my second point.

2. Accidental dismemberment and death by unintentional injury are very rare.

Dismemberment in today’s work environment is very rare, and the Center for Disease Control reports that deaths caused by unintentional injury total only 135,000 per year, or 42 out of every 100,000 people. The chances you’d need to file a claim are very slim — which makes it an even better income source for banks.

3. If you add coverage, the small fees may escape your notice or questions.

Many people who sign up for that additional coverage forget about doing so. If you signed up for $300,000 of coverage, the insurance company might be billing you shy of $10 per premium. In some instances, people have been paying for AD&D insurance for years without being aware of it. They either didn’t notice these small charges or weren’t alarmed by them.

Does this remind you of something? It should. Credit card scammers do the same thing for exactly this reason — small charges don’t raise red flags. That’s not to say the insurance company is scamming you, but money is coming out of your pocket just the same.

4. You’re better off buying a conventional life insurance policy with the option of AD&D coverage.

Most experts say that if you want to look out for your dependents after you die, a whole or term life insurance policy is the better choice, anyway. The key difference is that AD&D policies only pay if your death is an accident, whereas term life insurance will pay out regardless of the cause of death. If you still think you need AD&D (maybe you travel a lot or have a dangerous occupation), it can often be added as a rider on your life insurance policy.

So, are banks dishonest to offer free AD&D insurance? No, not necessarily. But keep in mind that it is an intentional effort to upsell you on a policy you probably don’t need.

That’s why I’m going to continue to throw those offers away — and I recommend you do, too.

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