Insurance What Is Accident Insurance? Accident Insurance Explained By Michael Evans Published on February 22, 2022 Fact checked by Gina LaGuardia Fact checked by Gina LaGuardia Gina LaGuardia has more than 25 years of experience in senior editorial roles, and is an expert in personal finance topics, including banking and lending. She has created content for financial powerhouses such as Chase Bank, American Express Canada, First Horizon Bank, BBVA, and SoFi. learn about our editorial policies In This Article View All In This Article What Is Accident Insurance? Understanding Accident Insurance Do I Need Accident Insurance? The Bottom Line on Accident Insurance Photo: izusek / ââGetty Images Definition Accident insurance is a type of insurance that only pays when the insured dies or suffers injuries in an accident. Accident insurance pays benefits if you sustain injuries or die in an accident. This type of insurance does not typically cover health care costs associated with an illness, and does not pay a death benefit when the insured dies of natural causes. What Is Accident Insurance? Accident insurance is a type of insurance that only pays when the insured dies or suffers injuries in an accident. Accident insurance policies typically have a fixed payout amount and do not cover costs associated with illness. Accident insurance policies do not replace health or life insurance, but can supplement those coverages. Accident insurance is inexpensive, readily available, and fairly easy to obtain. Let’s say Jane has a $500,000 accident insurance policy. If Jane dies in a car accident, her accident insurance policy will pay her beneficiary $500,000. If she dies of cancer, however, her accident insurance policy will pay nothing. Understanding Accident Insurance Unlike life insurance, accident insurance typically does not require underwriting. That means you can sign up for coverage offered in a group plan or purchase a personal policy without taking a medical examination. Note If you paid the premiums, accident insurance policy benefits are tax exempt. Payouts from an insurance policy taken out through your employer also are not taxed if you paid the premiums with after-tax dollars. What Accident Insurance Covers Accident insurance covers accidental deaths and a wide range of injuries that may include: ConcussionDislocationDismembermentEye injuryFractureLacerationRuptured discSevere burnTorn knee cartilage Accident Insurance Benefits If you’re disabled in a covered accident and unable to work, accident insurance can help replace your income. Accident insurance can also pay other expenses, such as: Alternative treatmentsAmbulance serviceBereavement and trauma counselingEmergency room servicesHospital admission feesInpatient rehabilitationMedical appliancesMedical testsSome types of surgery Note When an insured person dies due to a covered accident, their beneficiary receives a lump-sum payment. Some insurers also give beneficiaries the option to receive monthly payments. Exclusions Like all types of insurance, accident insurance comes with exclusions. For instance, a policy may not pay if the insured sustains an injury while intoxicated or committing a crime. Policies may also exclude injuries caused by a prior illness. Other common exclusions include death or injuries caused or sustained by: Taking part in a warLearning to fly an airplaneDriving without a driver’s licenseEngaging in hazardous sports such as rock climbingSuicide or intentional injuriesAn overdose of a drug or chemical not prescribed by a physician Payouts If a person with accident insurance dies due to a covered loss, the insurance company would pay 100% of the policy's principal sum. For example, if the insured carried a $500,000 accident insurance policy and died in a car accident, their beneficiary would receive a $500,000 payout. However, accident insurance pays a lower percentage for other types of injuries. For example, if you lose a hand in an accident, a policy may pay 50% of its principal sum; if you lose an index finger, it may pay just 25%. Note You would receive a payout from your accident insurance regardless of fault, unless specifically excluded. For example, if the insured died in a car accident while driving drunk, the insurer would most likely deny the claim. Family Coverage Some accident insurance plans allow you to add a spouse or partner and dependent children. However, a plan may only provide full coverage for the policyholder. For instance, a policy might only offer 50% coverage for domestic partners and spouses, and 15% coverage for each dependent child. If an accident injures or kills everyone covered by an accident insurance policy, it will only pay up to the coverage limit. For instance, if a family of four has a $100,000 policy, and all four sustain serious injuries in a boating accident, the insurer will pay a maximum of $100,000. Cost of Accident Insurance Depending on the insurer or employee benefits plan, you can usually purchase accident insurance in increments of $10,000 to $50,000. Typically, the coverage is very affordable. For example, some employer-based group accident insurance plans offer $50,000 in individual coverage for as little as $1.25 per month and $500,000 in family coverage for around $17.50 per month. Do I Need Accident Insurance? Since it's generally affordable, buying accident insurance is something to consider. But certain individuals and families are specifically encouraged to carry accident insurance, including: Those who don’t have adequate health insuranceFamilies with a single breadwinnerFamilies with young childrenPeople with an active lifestylePeople with a limited budget for unforeseen medical expenses Other Important Coverages Accident insurance is a type of supplemental insurance, and since it only pays when you’re injured or killed in an accident, it does not provide all the protection you need. You may also wish to consider purchasing disability, life, and health insurance policies. Disability insurance: Disability insurance helps replace a portion of your income if you’re disabled by an illness or injury. You can purchase short-term disability coverage, which could cover disabilities that last up to two years, or long-term coverage, which can pay lifetime benefits. Health insurance: Health insurance provides a more comprehensive set of benefits. With this type of policy, after paying a deductible out of pocket, the insurer covers a portion of your health care costs. Typically, health insurance policies cover expenses such as emergency services, hospitalization, maternity and newborn care, laboratory services, mental health and substance abuse services, pediatric care, and preventive services. Life insurance: Life insurance pays a death benefit to one or more beneficiaries when the insured dies, even by natural causes. You can purchase life insurance for a specific period or lifetime coverage. The Bottom Line on Accident Insurance According to the Centers for Disease Control and Prevention, emergency departments treated nearly 98 million unintentional injuries in 2018. Injuries are the fourth leading cause of death, taking the lives of nearly 201,000 people each year. Buying accident insurance makes good financial sense, especially if you have loved ones who depend on your income. It’s affordable, doesn’t require taking a medical examination, and is readily available through insurance companies and many employee benefits plans. Key Takeaways Accident insurance only pays a benefit when the insured sustains injuries or dies due to an accident.This type of coverage comes with exclusions and does not typically cover illness-related expenses.Accident insurance does not require a medical examination.You can purchase accident insurance through an insurance company as well as through some employer group plans.Accident insurance is affordable and available for individuals and families. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Anthem. “5 Reasons to Consider Personal Accident Insurance.” Roller Consulting Company, Inc. “Are Supplemental Accident Insurance Payouts Taxable?” MetLife. “Take Comfort Knowing You Have Financial Support for Accidents.” The World Bank. ”Basic Accidental Death and Dismemberment (AD&D) Insurance for Regular, Open, Term, ED, ETC/ETT Appointments.” Oregon Health Authority. “Accidental Death and Dismemberment.” Oregon Health Authority. “Accidental Death and Dismemberment.” City of San Jose. “Personal Accident Insurance,” Page 3. National Cancer Institute. “Disability Insurance.” U.S. Centers for Medicare & Medicaid Services. “What Marketplace Health Insurance Plans Cover.” Centers for Disease Control and Prevention. “Accidents or Unintentional Injuries.”