Final answer:
Accidental Death & Dismemberment (AD&D) Insurance pays out when the policyholder dies or is seriously injured due to an accident. It does not cover natural causes or illnesses, and benefits vary based on the policy's terms.
Step-by-step explanation:
Accidental Death & Dismemberment Insurance, commonly referred to as AD&D, is a policy that pays out to the insured under specific circumstances. The types of events that could trigger a payment under an AD&D policy include instances where the policyholder dies in an accident or suffers a serious injury that results in dismemberment. It's important to note that this type of insurance is strictly tied to accidental scenarios and does not pay out for deaths caused by natural causes or illnesses.
For example, if the policyholder were to die as a result of an accidental fall, the beneficiaries would receive the death benefit from the AD&D policy. Similarly, if the policyholder were to lose a limb or suffer paralysis due to an accident, they would be entitled to collect a dismemberment benefit according to the terms of the policy.
It's crucial for policyholders and beneficiaries to thoroughly understand the terms and exclusions of their AD&D policy, as each policy may have specific definitions of what constitutes an 'accident' and may stipulate different levels of coverage for different types of injury.