Occasionally, when working with a business owner or prospective business owner, we get a request for an accidental death insurance policy to protect their business. In many of these cases they have been advised to buy key man insurance by their attorney or banker and are shopping for the best deal. In an effort to save money they bypass traditional key person insurance and focus on accidental death coverage. This thinking is obviously shortsighted and the reasons are addressed below.
The chief reason why some consider accidental death and dismemberment (ADD) insurance in lieu of key person insurance is cost. While it is true that the price for an ADD policy is really inexpensive, the policy limitations are so significant that it would take an extreme situation for the policy to payout benefits. In other words, the scenarios where an ADD policy will pay proceeds are few. Everyone has heard the statement, “you get what you pay for”. This is certainly true when it comes to buying ADD insurance. There is a reason why coverage is so cheap and that is because claims for benefits are rarely paid.
Another reason why business owners look at accidental death insurance is that they are “really healthy” and “if something where to happen, it would likely be in an accident.” We have heard this statement from 30 year olds as well as 65 year olds. This way of thinking is totally illogical as none of us know the future and while death is certain, assuming an accident will be the cause is crazy.
Finally, many business owners fall back to accidental death insurance when they think they are uninsurable. While this argument may make some sense, the truth is that we rarely find cases when we can’t get a business owner insured due to medical history. Sure, the cost will be higher and sometimes prohibitive but if you work with an independent insurance professional that specializes in getting insurance for tough medical conditions coverage can be found.
The bottom line is that if you want your business adequately protected, accidental death and dismemberment insurance cannot achieve the same outcome as traditional key man insurance. If your company has a key employee or executive, buying key man life and disability insurance is essential to assuring the long term success of your business. We are not against buying ADD in addition to key man insurance,but if you are try or are trying to protect your business solely with accidental death and dismemberment insurance, you are shortsighted and have a misguided risk management strategy.