What’s the point of double indemnity life insurance from the insured’s point of view? If I’m the breadwinner and I want to make sure my family has a future, does it make any difference to them (financially) if die of a heart attack or if I die in an automobile accident? Are there situations wherein double indemnity makes logical sense?
I think the supposition is that an accidental death (motor accident etc.) implies an earlier death than expected, when extra money might be needed (lost future income, lower current savings).
I’m not sure I understand your question.
From the point of the insured person, it doesn’t matter how you die – you’re still dead.
From the point of the beneficiaries, though, it can make a significant financial difference. If your policy had a double indemnity clause for, say, a car accident, and you died in a car accident, your beneficiaries would get double the face amount of the insurance coverage, e.g. $200,000 instead of $100,000.
Double indemnity policies/clauses can make sense in some instances. Again, as an example, if you spend a lot of time traveling by car, your odds of dying in a car accident go up. So it might make sense to have your life insurance policy reflect that.
It’s basically a calculated gamble based on how dangerous your job or lifestyle is. If there is little chance that you will be one of the 5% who die in an accident, the extra premium isn’t worth it. If you are young or have a risky occupation, you are likely to be declined for a a DI policy or pay a really hefty premium. The sweet spot for insurers is people over 45 that think their daily lives are more at risk than they actually are. What’s really happening is that people who want these policies are just gambling with money they could use to make their families more secure while they are still alive.
Getting an accidental death rider on your life insurance policy is significantly cheaper than doubling the entire policy - and your average policyholder isn’t going through the actuarial charts to see just how low their odds are of dying via accident to see that paying for the rider is just kind of a waste. So the “purpose” is to make them sleep better at night knowing they’ve spent a little extra money to maybe possibly secure their family’s future should they get obliterated by a bus in the morning.
Is this a real-world number? Or just for illustration? Because I think 0,0125% is closer (in the US). That is, 12 to 13 per 100,000 population (I hope I have my decimal in the right place). This is auto accidents, I see that may not be what you meant. All accidents are a little tougher to put a number on for a layman.
Which is why it makes sense for insurance companies to sell it, clearly the risk for them is very, very low. And why it makes little sense (to me) to buy it, for the obverse reason.
O.P. here, but that’s the point. If you thinks $200k is necessary for the financial future of your family, then take out a $200k policy. In your scenario, the family only has enough money for college if breadwinner dies in an accident.
It’s the insurance industry equivalent of “You want fries with that?”
An easy upsell on a product with truly awesome margins. For them.
The upside is also real obvious to the customer and the fact it’s stupid overpriced (and they don’t know it) doesn’t much matter because the price isn’t really that big a number on the overall tab.
That policy costs a lot more than the double indemnity add on. People buying that add on are looking for a potential windfall for their beneficiaries; not counting on it to merely meet their needs.
I was wrong. 68 per 100,000, which is 0.068%. The highest type of accident is unintentional poisoning, followed by falls, and then auto accidents. Falling off a train is way down there. Source: National Vital Statistics System via Google.
If I’m a healthy person who expects to live a full life, $100k is enough to take care of my beneficiaries when I die of old age. However, if I get hit by a bus when I’m 35, the extra cash will help them get through a few extra years of hardship while they find another way to win bread.
Also, if I’m slowly dying of some disease or old age, I have time to get my financial affairs in order, but a surprise death could certainly lead to extra costs and ineffeciencies.
Dying early is the purpose of (term) life insurance. But of those who die early, a vanishly small percentage of them do so via accident, which is the purpose of the OP’s question.
Sure, but any kind of surprise death is going to be more expensive to recover from. If I’m the sole breadwinner and die suddenly, my spouse will be caught completely unawares. If I’m slowly going due to cancer or something, my spouse will have time to get back into the job market.
Again, that is the purpose of term life insurance. Adding an accidental death rider to it is pointless.
An accidental death may be more traumatic and emotionally long-lasting for those left behind. In that case, having a bunch of extra money can ease their burden and give them more flexibility to recover. Certainly any death is traumatic, but a death from an illness will typically have some period of time between diagnosis and death. That time gives people to adjust and come to terms with the possible outcome. They are able to move on more quickly. But if a death happens randomly at 2pm on a Tuesday, everyone’s lives are immediately upended. Getting a windfall in that case allows the family to do something like spend some time on a vacation to help them deal with their loss.
You do know that heart attacks are pretty quick, right?
Sure, sudden death from health issues can always happen. The base life insurance value should be an amount to allow your family to be financially stable if you’re no longer around. But I can see the benefit of having the indemnity as a way of giving your family a pile of fun money to help them get over the pain not having a chance to say goodbyes.
But unless you have some kind of permanent life insurance (which is itself much, much more expensive than term), you aren’t going to have life insurance in old age. The term will long since have expired (presumably). Nobody is buying term life insurance that will cover you when you are 90 years old.
I’m not actually here to argue for or against a double indemnity rider. I think it could be useful to cover unexpected expenses relating to an accidental death.
Permanent life insurance isn’t really more expensive than term life, it just also includes an investment portion. That investment grows tax free. The insurance market is very competitive, and the insurance part of any policy will pretty much be the probability of you dying over some time period multiplied by the amount at risk when you die.
With term life, since those probably stop before you really start looking like you’re going to die, the cost of insurance is pretty cheap. With permanent insurance, since it just keeps going and going, probability of you dying while the policy is in place gets close to 100% (you get a discount because they know some percentage of policies will lapse), and then you also add on the investment.
So, the payment is higher, but it’s not really more expensive.
Just don’t let Walter Neff sell you a policy.