Accidental life insurance is an inexpensive way of obtaining life insurance coverage for yourself or someone else in your family. These policies typically pay a handsome death benefit to your beneficiary in the untimely event of your death, due strictly to an accident that causes death within a specified period of time. Because accidental death makes up less than 5% of all deaths nationwide, insurance companies know their chance of loss is minimal, thus they can offer inexpensive premiums for this type of policy.
The catch is, they are subject to certain "death criteria." For example, if the death was resultant from public transportation, the death must occur within three months of the accident. Also, your beneficiary will only collect benefits if your death is proven as a direct result of the accident. Some beneficiaries have a difficult time trying to prove this, as death can occur several weeks after an accident and for various reasons other than the accident itself, such as medical complications or surgical procedure risks. Unfortunately, it is the beneficiary's responsibility to prove this, which makes accidental death life policies a riskier product when compared to the traditional life insurance policy.
Remember, insurance companies have fancy lawyers, deep pockets and lots of time. If the accident is questionable, you can bet they'll try to fight the death benefit payout. Before you purchase an accidental death insurance policy, compare rates with a traditional term life insurance policy. Even if the premiums are slightly higher with traditional terms, you and your family will have a better piece of mind. (Learn what types of policies you should avoid, read 15 Insurance Policies You Don't Need.)
This question was answered by Steven Merkel
What the big headline death benefit giveth, the fine print taketh away. The price for life insurance is not set willy nilly, but rather the cost is estimated by actuaries to assess the likelihood of an event happening.
When you look at the fine print of what qualifies as an "accident" you may guess that many people actually die from an "accident."
For example: A plane crashes, and you are rushed to the hospital in critical condition. You end up dying say by heart failure, caused by the plane crash. But since you didn't actually die in the plane crash your "accidental death" policy often might now pay you a benefit.
Contrast that with regular life insurance (Term of Permanent) if you are dead you are dead. (there is fine print on regular life insurance as well, but it's generally more limited). There is higher risk that the insurance will have to pay out, so the premiums will also be higher.
Hope this helps
David Rae, CFP