An insurance producer is explaining the difference between an 'Accidental Death and Dismemberment (AD&D)' policy and a 'Disability Income' policy to a client. Which key distinction should the producer emphasize regarding the benefits paid?
- AAD&D pays for specific accidental losses of life or limb, while Disability Income replaces lost earnings due to inability to work.
- BAD&D benefits are taxable, while Disability Income benefits are always tax-free.
- CAD&D covers illnesses, while Disability Income only covers accidents.
- DAD&D pays a monthly income, while Disability Income pays a lump sum for loss of life or limb.
Show answer & explanationAnswer & explanation
Correct answer: A. AD&D pays for specific accidental losses of life or limb, while Disability Income replaces lost earnings due to inability to work.
AD&D policies pay a lump-sum benefit for accidental death or the loss of specific body parts or functions due to an accident. Disability Income policies, conversely, provide a regular income stream (usually monthly) to replace lost earnings when the insured is unable to work due to illness or injury (accidental or otherwise).
Why the other options are wrong
- B. Taxation depends on who pays the premiums; this is not the primary distinction in benefits paid.
- C. This is incorrect; AD&D covers accidents, and Disability Income covers both accidents and illnesses.
- D. This statement reverses the typical payouts; AD&D is lump sum, Disability Income is monthly.
AD&D vs. Disability Income
Accidental Death and Dismemberment (AD&D) insurance provides a lump-sum payment for accidental death or specific accidental injuries, while Disability Income insurance provides a regular income stream if the insured is unable to work due to illness or injury.
- AD&D: Event-driven (accident), lump sum for specific losses.
- Disability Income: Income replacement, covers both illness and accident.
- AD&D is often a rider; Disability Income is a standalone policy.
- Both are distinct from life insurance (which covers death from any cause).
Memory trick: AD&D is for 'oops' and 'ouch' (lump sum), Disability is for 'can't work' (income).