Why is accidental life insurance so inexpensive?
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
Thanks for asking! When you have a moment, also see David Rae's answer. Basically the answer I would give is that over the long haul you get what you pay for. Or put another way, accidental death is very uncommon in modern American life. Our occupations and lives are MUCH safer than they were in the past. Very few people are involved in accident prone vocations in today's world. Plus, even in higher risk occupations death is very infrequent. There is a saying that "insurance companies do not get rich by paying claims." They can provide accidental death coverage and predict the number of claims pretty well. I hope that helps. Best of luck!
Accidental life insurance is comparatively inexpensive because many people die of an illness, so there's a lower probability the carrier will have to pay a benefit. Having said this, there is a time and a place for this product.
First of all, the fact of the matter is that a lot of people do die of accidents. These include household falls, car crashes, workplace accidents, sports and recreational injuries, violent street crime, and acts of terror/war/civil unrest. Don't discount these.
Second of all, some people simply do not yet qualify for a life insurance policy that covers any cause of claim. If you are unfortunately terribly obese, with out of control blood sugar and blood pressure, it will be almost impossible to get a policy. You might be able to get a small policy on a guaranteed issue basis, but odds are it won’t cover your full need for insurance. So pick up an accidental policy to provide some additional benefit.
Now, it should also be mentioned that people who do represent a high risk - either medically, or because of an adventurous hobby or dangerous vocation - may still be eligible for a fully underwritten policy that provides benefits regardless of the cause of death. With the right candidate, the right broker, and the right underwriter, a purchase maybe possible. Prequalification will tell.
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
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