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Accident Insurance vs Income Protection

What is accident insurance and how does it work?

Accident insurance is different from income protection insurance, yet they complement each other in helping protect families in times of need and unexpected accidents or illnesses. There are two types of accident insurance: accident insurance (AD) and combined insurance of accident and accidental death insurance (AD&D).

Accident insurance provides payment to a policyholder who experiences injury caused by an accident. Accident insurance often excludes coverage of an accident deemed negligent on the person’s part, natural disasters, and high-risk activities as examples, paragliding, parachuting, and bungee jumping. High-risk sports and high-risk occupations are commonly excluded. Accident insurance may cover accidents occurring while traveling on vacation or business trips.1

Accident insurance may be used on a singular accident or may pay for separate accidents according to the specific language in the insurance policy. There may be a cap on how much and how often the policy pays for more than one incident of an accident, depending on the specific policy language and amounts.

In addition to what an accident policy covers, accident and death (AD&D) insurance includes death due to an accident, and the benefit is paid to the person designated as the beneficiary of the policy.

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Often companies offer both long and short-term income protection as part of their benefits, or at group rates for employees to purchase.

The payout or benefit of accident insurance can help cover a portion of the medical expenses associated with the loss of a limb or injury.

Other Accident / AD&D insurance policies may pay mortgage income protection if the accident prevents the policyholder from resuming his or her work duties for a period of time.

It is common for an accident insurance benefit to be paid in a lump sum. Some policies may pay out in increments. Check the specific language of the policy before purchasing insurance.

When shopping for an Accident / AD&D insurance policy it is important to note:

  • Find a reputable insurance company. Read reviews and check out the company financial ratings .
  • Read the policy language and examine what the policy covers and does not cover.
  • Ask and verify with the insurance agent any questions regarding benefits.

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Income protection insurance is commonly referred to as disability insurance

Unlike a one-time lump benefit typically paid for an accident, income protection or disability insurance can pay a part of your regular income for when you are unable to work due to an illness or accident.
Income protection insurance is based on your inability to return to your current job due to an illness lasting longer than normal, non-elective surgery or medically necessary surgery, birth-related leave, or an accident resulting in an injury.

When might you consider income protection insurance?

  • You are having a baby and on birth-related leave for 3+ months. During this time, short-term income protection insurance pays a portion of your regular work pay. Income protection insurance policies may exclude pregnancy and birth-related leave. Be sure and verify before buying.2 
  • You have an accident which prevents you from returning to work. If the accident disables you cognitively or physically from completing job responsibilities, then long-term protection kicks in after the short-term protection expires.
  • You have non-elective or medically necessary surgery. During the time you recover, you are unable to return to work. If the  period of recovery is longer than the terms of short-term income protection and the insured has long-term income protection, the coverage is extended 3
  • You have been diagnosed with long-term, chronic, or terminal illness. You are unable to work, and under a doctor’s care. 
There are two types of income protection insurance: short-term disability insurance (STD) which usually covers 60-90 days, and long-term disability insurance (LTD) which covers beyond short-term and for life or to a certain age.
Income protection insurance usually covers from 50-90% of your income. It does not cover commission or bonus pay as applicable to the calculation of payout benefit. Income protection insurance may also have a cap or limits for the benefit paid to the insured. An example is a employed person with a seven-figure income.  The insurance policy may cap out at $10,000 per month. Self-harm, war or civil unrest, and military service are some exclusions of income protection insurance.2
Both short term and long term income protection each have a waiting period. The waiting period must be over before the insurance can receive benefit for experiencing an accident or illness.

What you should consider when purchasing a STD/LTD insurance policy:
  1. Research the insurance company before purchasing. Do they honor the insurance policy and adhere to the payout of the benefit consistently?
  2. Compare the waiting period a policy has before beginning the payout of the income protection policy. Is it a week, a month, or longer?
  3. Understand the specific language of what is covered under short-term and long-term income protection. Do the two overlap or is there a waiting period between both?
  4. Is the process for applying for short/long term income protection easy and understandable?
  5. If you are self-employed, can you apply for income protection insurance? If you are self-employed with a variable income, how is your income valued for the maximum benefit coverage?3

Companies commonly offer short-term income protection insurance to their employees. Often companies offer both long and short-term income protection insurance as part of their benefits or at group rates for employees to purchase.
Individuals whether working for a company or organization, or self-employed are generally able to purchase accidental death or dismemberment insurance (AD&D), as an additional source of protection.

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Globe Life Staff

Globe Life articles are researched, written, and edited by multiple members of the Globe Life staff including, Marketing Specialists, Content Writers, Product Experts, as well as Legal & Compliance Professionals.