Tennessee Insurance Practice Exam

P loses an arm in an accident and receives $10,000 from his Accidental Death and Dismemberment policy. What is this amount called?

1. Death benefit

2. Capital sum

3. Life benefit

4. Policy payout

The correct answer is: Capital sum

The amount received by P after losing an arm in an accident under an Accidental Death and Dismemberment (AD&D) policy is referred to as the capital sum. In the context of AD&D insurance, the capital sum is a specific benefit that is payable for the loss of a limb or other specified bodily functions as outlined in the policy. This sum is predetermined in the insurance contract and reflects the compensation for the loss of a part of the body, such as an arm, rather than a death benefit, which would be applicable if the insured had passed away as a result of the accident. The distinction is important as AD&D policies often differentiate between various types of loss and the amounts associated with them, with the capital sum being a common term used for such payments.