Introduction
Accidental Death and Dismemberment Insurance (AD&D) is a specialized form of insurance that offers financial compensation in the event of accidental death or serious injury, such as loss of limbs or eyesight. It’s highly relevant for working professionals, investors, policyholders, and business owners who seek additional protection beyond traditional life insurance.
Understanding AD&D insurance is essential when planning for financial risk management, employee benefits, or evaluating personal insurance portfolios. This coverage can also impact tax planning and business liability management, particularly in India, where accidental deaths are rising and personal financial security is crucial.
Definition
Accidental Death and Dismemberment Insurance (AD&D) is a type of insurance policy that pays out benefits to the insured or their beneficiaries in case of accidental death or bodily injury resulting in dismemberment, such as the loss of a limb, sight, or hearing.
Detailed Explanation
🔹 Types of AD&D Insurance
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Individual AD&D Insurance
Purchased independently to complement life or health insurance. -
Group AD&D Insurance
Often offered as part of employer-provided benefits under group life insurance. -
Voluntary AD&D Insurance
An optional policy employees can opt-in for, with premiums deducted from their salary.
🔹 How It Works
AD&D policies cover only accidental incidents—natural deaths or deaths due to illness are excluded.
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If the insured dies in an accident, the full death benefit is paid to the nominee.
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If the insured suffers dismemberment, a partial benefit is paid depending on the severity (e.g., 50% for one limb, 100% for two).
Example:
If Mr. Kumar has an AD&D policy of ₹20 lakhs and loses a leg in a car accident, he may receive 50% of the coverage, i.e., ₹10 lakhs.
🔹 Why It’s Important
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Extra protection beyond life insurance.
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Financial aid during unexpected physical disability.
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Often used in employee benefit planning.
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Affordable premiums compared to standard life insurance.
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Important for frequent travelers, hazardous job holders, or outdoor workers.
🔹 Accounting Illustration
If a business provides AD&D as an employee benefit:
Journal Entry Example:
Visual Aid: Coverage Comparison
| Event Type | Life Insurance | AD&D Insurance | Payout |
|---|---|---|---|
| Natural Death | ✅ Yes | ❌ No | Full |
| Accidental Death | ✅ Yes | ✅ Yes | Full |
| Loss of One Limb | ❌ No | ✅ Yes | Partial |
| Death due to Illness | ✅ Yes | ❌ No | Full |
Tax Implications in India
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Premiums paid by individuals for AD&D insurance are not eligible for deduction under Section 80C or 80D of the Income Tax Act.
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However, if the policy is part of employer-provided benefits, the premium may be treated as a business expense, reducing taxable income.
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Payouts received from an AD&D policy are generally tax-free under Section 10(10D), provided certain conditions are met (e.g., the sum assured is at least 10 times the annual premium).
Examples
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Individual Case:
Riya purchases an AD&D policy worth ₹10 lakhs. She survives a major road accident but loses one arm. As per policy terms, she receives ₹5 lakhs (50% of sum assured). -
Employer-Provided Case:
ABC Pvt Ltd offers ₹15 lakh AD&D coverage to employees. The company pays ₹1,500 per employee annually and claims it under employee benefit expenses.
Frequently Asked Questions (FAQs)
Q1. Is AD&D insurance the same as life insurance?
No. AD&D pays only in case of accidental death or dismemberment, while life insurance covers all causes of death.
Q2. Can I buy AD&D insurance without life insurance?
Yes, though it is often bought as a supplement to life insurance.
Q3. Is AD&D premium eligible for tax deduction in India?
Not for individuals. But businesses can claim it as an expense if offered as an employee benefit.
Q4. What are common exclusions in AD&D insurance?
Death due to natural causes, suicide, war, or intoxication is typically excluded.