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How crucial is accidental death and dismemberment coverage in a level-term life insurance policy?

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Dear Dave,

My wife and I both work, and we have been looking at level-term life insurance policies. A friend says it would be a good idea for us to have accidental death and dismemberment insurance, too. Do you agree?

Aidan

Dear Aiden,

You both definitely need good-level term life insurance policies. Stick with 15- to 20-year level term life insurance, and make sure that coverage is separate from anything provided by your employer.

Each one of you needs 10 to 12 times your yearly income wrapped up in a policy. If you make $50,000 a year, that means you need a policy with $500,000 to $600,000 worth of coverage. The idea of ​​life insurance is to take the place of income. If you or your wife died, the other could invest the insurance money and replace that lost income.

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You do not—I repeat, not—need accidental death and dismemberment (AD&D) insurance. These policies are cheap, but they’re pretty much worthless because of the long list of conditions they won’t pay out for. Most pay out only a small portion in cases of dismemberment, and many won’t pay a death benefit if you die from a medical procedure, health-related issue or drug overdose. The devil’s in the details, and AD&D policies are chock-full of them.

If you have long-term disability insurance in place, which is what I recommend, you can be covered for a substantial part of income lost due to an injury or disability. One study says 25% of today’s 20-year-olds will become disabled by age 67. In my mind, those odds are way too high for you to skimp on long-term disability insurance—especially when it’s very affordable in most cases. If you’re in your prime income-earning years, a permanent disability could derail your dreams of homeownership, paying for your kid’s college or having a dignified retirement.

I hope this helps, Aiden!

-Dave



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