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what is voluntary life insurance?
The voluntary life insurance benefit, also known as supplemental life insurance, is usually offered through the workplace. As with other types of life insurance, voluntary life insurance provides beneficiaries with an agreed-upon death benefit.
Voluntary life insurance is typically offered in addition to a basic life insurance policy at a discounted premium compared to retail insurance policies since the employer acts as the sponsor. It is typically paid through payroll deductions.
What Is Voluntary Life Insurance?
Supplemental life insurance is an employee benefit that provides additional life insurance coverage over and above the basic life insurance your employer provides. It is typically offered at a lower price than if you were to purchase it on your own. Due to group rates provided by the employer’s plan, employees can take advantage of these rates.
Some voluntary life insurance is a guaranteed issue, which means an insured doesn’t have to provide evidence of insurability (no medical exam or underwriting required) to qualify for a policy.
Employer-sponsored voluntary life insurance can thus provide coverage for people who may not otherwise qualify for a policy due to a medical condition or dangerous hobby.
how does it work?
The most common voluntary life insurance policy is voluntary term life insurance, although voluntary whole life insurance can also be offered. When you leave your job, your policy may also be portable (meaning you can take it with you).
There is a difference between whole life or another type of permanent policy that can last throughout your lifetime and a term life policy that expires at the end of the specified term. You can generally expect to pay your premiums via payroll deduction whether you choose a voluntary term or voluntary whole life insurance policy.
Voluntary life insurance has the following advantages:
- While employers may offer a guaranteed issue benefit amount, they may also offer coverage options above it (that are not guaranteed issue). When you purchase coverage above the guaranteed issue amount, you can expect your application to be subject to some level of medical review.
- Riders: You may be able to add one or more riders to your policy to provide added benefits, such as life insurance for your spouse and/or dependents, as well as accidental death and dismemberment coverage. Additional riders usually increase your premium.
Portability
It’s important to know if your voluntary life insurance policy is portable, meaning you can continue coverage even if you leave your job. Check your policy information to determine portability and keep in mind that policy premiums may go up since you are no longer associated with the employer that afforded you the lower rate.
Is Voluntary Life Insurance Necessary?
Maybe a good option if you do not otherwise qualify for life insurance (or if it is very expensive) due to a medical condition or high-risk hobby, for example. The basic coverage provided by your employer plus voluntary coverage up to the guaranteed issue amount can provide you with essential coverage you may not be able to get elsewhere. Supplement your employer-provided coverage with an individually purchased policy if you need more. You may want to consider purchasing a private supplemental life insurance policy outside of your employer’s policy, especially if your work policy is not portable, if premiums would increase when you leave employment, or if you need permanent coverage.
Types of Voluntary Life Insurance
Employers offer two types of voluntary life insurance policies: voluntary whole life and voluntary term life. Term life insurance is also known as group life insurance. Face amounts may be multiples of an employee’s salary or stated values, such as $20,000, $50,000, or $100,000.
Voluntary whole life insurance
covers the entire life of the insured. If whole life coverage is elected for a spouse or dependent, the policy also covers that person’s entire life. For spouses and dependents, the amounts are typically less than for employees. As with permanent whole life policies, cash value accumulates according to the underlying investments. There are some policies that apply a fixed rate of interest only to the cash value, while others allow variable investment in equity funds.
Voluntary term life insurance
A voluntary term life insurance policy offers protection for a limited period of time, such as five, ten, or twenty years. A voluntary term policy does not build a cash value or invest in variable investments. As a result, premiums are less expensive than for whole life insurance. Premiums are level during the policy’s term, but may increase upon renewal.
An example of voluntary term life insurance
Voluntary term life insurance can be a good complement to whole life insurance for some participants. Jordan, for example, is married with children and has a $50,000 whole life insurance policy. Following a financial needs analysis, it is determined that their life insurance is insufficient. The life insurance broker recommends that Jordan maintain at least $300,000 in life insurance while their children are minors.
Jordan’s employer offers voluntary term life insurance with reasonable premiums, and Jordan chooses to supplement their existing coverage until their children reach the age of majority.
KEY TAKEAWAYS
A voluntary life insurance policy is an optional benefit offered by employers that provides a cash benefit to a beneficiary upon the death of an insured employee.
Paying for the coverage is done through a monthly premium deducted from your paycheck.
Employees can enroll immediately upon hiring or shortly thereafter.It is usually less expensive than buying life insurance on the open market.
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