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Benefits 2005, Part 4: Accidental Death and Dismemberment

Contributed by mm | November 20, 2004 8:44 AM PST

Why is Accidental Death and Dismemberment insurance important? Unlike term life insurance, which only pays out benefits upon death or terminal illness, Accidental Death and Dismemberment insurance pays benefits in the event of an accident-related death or injury that causes the loss of limbs or certain senses.

Here is a quick summary of what the Microsoft Accidental Death & Dismemberment (AD&D) group policy:

- You can elect coverage for yourself and your family. The amount of coverage you elect for yourself drives the amount that is available to various family members.

- You can elect coverage in increments of $10,000 up to 10 times your annual base pay, subject to a maximum coverage of $1,000,000. For people who elect coverage for spouse and children, dependent coverage will be: 50%for spouse/same-sex domestic partner, 15% for each child for accidental death and 50% for each child for dismemberment.

- Accidental death benefits are payable if you - or an insured dependent - dies as the direct result of a covered accident as follows: At your accidental death, your beneficiary would receive the full AD&D benefit amount; At your insured dependent's accidental death, you would receive a payment based on your elected AD&D benefit and your family structure at the time of the death.

- The plan also pays full or partial benefits for certain serious injuries other than loss of life. All plan payments are in a lump sum, unless otherwise indicated. (Some details: "Loss of both hands, both feet, sight in both eyes, or a combination of these" = 100% coverage payout, "Loss of speech and hearing in both ears" = 100% coverage payout, "Loss of speech or hearing in both ears" = 50% coverage payout, "Loss of one hand, one foot, or the sight in one eye" = 50% coverage payout and "Loss of thumb and index finger of same hand" = 25% coverage payout.

- AD&D premium is paid from pre-tax money.

Now I decide to elect for coverage for my entire family. I need to have AD&D coverage for my kiddie: although I don't see the value of death coverage (reason), I do need to cover my base if the "dismemberment" part comes to play.

On the premium side, my premium for family coverage will be $24 a year per $100,000 coverage. Unlike in the case of term life insurance, there is no arbitrage opportunity because election under my wife's name receives exactly the same premium structure.

My final take is to elect under both names for a total coverage of $1.3 million, which will ensure:

- Upon my accidental death, my wife and my son will receive $1.7 million (including term life insurance payout).
- If my wife unfortunately passes away in an accident, the payout will be around $1 million (including term life insurance payout too)
- If we both decease, my son will have a small fortune of more than $3 million, which should be enough for his education and a good part of his life (hopefully he is personal finance smart enough)
- If either of us falls into the category of "dismemberment," a benefit of $0.5 million to $1 million should stabilize the economy of our family as we move forward.

Sounds like sufficient coverage for me, isn't it?

Read The Complete Benefits 2005 Series:

Benefits 2005, Part 1: 401(k)
Benefits 2005, Part 2: Term Life Insurance
Benefits 2005, Part 3: Flexible Spending Accounts
Benefits 2005, Part 4: Accidental Death and Dismemberment
Benefits 2005, Part 5: Everything Else

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