What is Double Indemnity

Although life insurance, health insurance and personal accident policies are not contracts of indemnity (those that seek to compensate), they are based on the broad idea of financially compensating for loss or misfortune. It is on this broad concept of appropriate compensation that the idea of ‘double indemnity’ in life insurance is based.

‘Double indemnity’- in simple terms- refers to the disbursement of twice the amount of the sum assured on your life insurance contract, in the event of death from an accident within a certain period. Known as the Accidental Death rider or ‘double indemnity’ rider, it is one of many ‘optional supplementary benefits’ that are offered on life insurance contracts.

Technically, merely having the Accidental Death benefit is not double indemnity. The concept arose from the value of the optional benefit being the same as the sum assured- leaving the beneficiary of the policy with twice the amount of the sum assured in the event of the insured’s death by accident.

For example, assume that you have a life insurance contract with a sum assured of $500,000.00. When you apply for the life policy, you choose to have the Accidental Death benefit of $500,000.00 for a marginally higher premium. If your death does not occur by accident, but the other terms of the life insurance contract are met, your estate will only receive the sum assured ($500,000.00).

However, if your death is caused by accident (with all necessary conditions being satisfied) then your estate would receive $1,000,000.00. That’s the basis of double indemnity with a life insurance contract. The Accidental Death benefit’s sum insured does not have to be the same value as the sum assured. It may be a multiple of the sum assured of the life insurance contract.

There are certain exclusionary causes and clauses stipulated by an insurer. It is not merely enough for death to be ‘accidental’. Typically, if the insured is deemed to be responsible for circumstances leading to the accident (drug use or reckless behaviour), the Accidental Death claim would not be honoured. Instead, the insurer may only be liable for the sum assured.

The Accidental Death benefit does not usually remain for the duration of the insured’s lifetime. Insurers consider that accidents are likelier to occur when the faculties are not intact. This optional supplementary benefit typically expires by age 65 or 70, depending on the type of life insurance.

‘Double indemnity’ is a very useful additional benefit that could double the compensation for far less than twice the premium. However, that is only because it is a sum insured and the insurer is not assured to pay. Those with higher occupational risk may find that the Accidental Death benefit is necessary to provide additional comfort to the family.