Life insurance helps provide financial support for your loved ones if you pass away. A policy’s death benefit may help cover a mortgage, education costs, monthly bills, and other living expenses. While you can buy coverage on your own, employers often offer basic and optional life insurance that may meet your needs.
Voluntary life insurance is supplemental coverage offered through an employer. It typically provides a death benefit based on a multiple of your salary and may cost less than an individual policy. While employer-sponsored coverage may not provide all the protection you need, it can be a way to obtain basic coverage.
Voluntary Life Insurance Defined
Voluntary life insurance is optional coverage offered through your employer. Like other life insurance policies, it provides a death benefit to your beneficiaries if you die while the policy is active. Check whether coverage continues if you leave your employer.
Many employers provide basic life insurance coverage and may pay some or all of the premium. Voluntary life insurance is additional coverage you can purchase beyond that basic benefit amount. Premiums are often lower than individual policies and are usually paid through payroll deductions, similar to 401(k) contributions.
Enrollment is optional. You do not have to sign up if your employer offers it. However, it may be worth considering if you have health concerns that make individual coverage harder to obtain or if you only need a smaller amount of coverage.
How Does Voluntary Life Insurance Work?
Voluntary life insurance is typically offered through your employer and can be added to your existing benefits package. Here's how it generally works:
- Employer offers basic coverage: Many employers provide basic group life insurance, often at little or no cost to employees.
- Coverage may be guaranteed issue: In some cases, you can enroll without providing health information or completing a medical exam.
- You choose additional coverage: Voluntary life insurance allows you to purchase supplemental coverage beyond the basic policy.
- Coverage is often based on salary: Employers may offer coverage amounts in multiples of your annual salary, such as two, five, or 10 times your earnings.
- Premiums are payroll deducted: The cost of coverage is usually deducted directly from your paycheck, making payments convenient.
- Costs are often competitive: Group rates through an employer may be lower than purchasing an individual policy on your own.
- Benefits are paid to beneficiaries: If you pass away while the policy is active, the death benefit is paid to your designated beneficiaries.
While voluntary life insurance can increase your coverage, it may not fully meet your family's financial needs.
What's the Difference Between Life Insurance & Voluntary Life Insurance?
Understanding the differences between the two can help you make an informed decision.
| Feature | Individual Life Insurance | Voluntary Life Insurance |
|---|---|---|
| Cost | Usually costs more | Often costs less |
| How Rates Are Determined | Based on individual underwriting and policy selection | Based on group coverage offered to employees; larger groups may receive lower rates |
| Enrollment | Purchased independently | Offered through an employer |
| Coverage Purpose | Provides coverage you select on your own | Allows you to purchase supplemental life insurance in addition to any basic employer-provided coverage |
Who Needs Voluntary Life Insurance?
Not everyone needs or wants voluntary coverage. Are loved ones financially dependent on you? The death benefit can help provide financial stability after the death of a provider, especially in situations where finding other coverage may be difficult or costly.
There are a few situations where a voluntary life insurance policy may be a good fit for your needs. These include:
- You have health issues: If you have a health condition that may disqualify you from private life insurance coverage, a voluntary policy can provide a way to get some coverage without taking a medical exam.
- Employer-sponsored coverage isn't enough: Your employer-provided coverage may not be enough to help meet all your needs. Adding supplemental life insurance can help provide additional financial support.
- You only need a small amount: If you do not have much debt or any dependents, you may only need a small amount of coverage to leave to loved ones or help cover final expenses.
- You have budgetary concerns: Voluntary coverage is often less expensive than purchasing an individual life insurance policy on your own.
Remember, voluntary coverage may not be enough to meet all your needs. It also may not stay with you if you leave your job. Review the policy details carefully to determine whether it is a good fit for your situation.
What Are the Types of Voluntary Life Insurance?
There are two main types of life insurance, though employers may not offer both. Understanding the differences can help you choose the right coverage.
Term Life Insurance
Term life insurance provides coverage for a specific period, typically 10 to 30 years. If you die while the policy is active and premiums are paid, your beneficiaries receive a death benefit.
Most employer-sponsored policies are group term life insurance policies. Because coverage is temporary and does not build cash value, premiums are generally lower than permanent life insurance.
Some voluntary term life insurance policies require renewal every year or every few years. Premiums may increase as you age, while the death benefit remains the same.
When the term ends, coverage expires. You may be able to renew the policy, purchase a new one, or convert it to permanent life insurance. If coverage ends and is not renewed, no death benefit is paid.
Permanent Life Insurance
Some employers may offer permanent life insurance, though it is less common than term coverage. Permanent life insurance provides lifelong coverage and may allow you to keep the policy if you change employers, depending on portability rules.
Premiums and death benefits generally remain consistent throughout the life of the policy. However, permanent life insurance (such as whole life and universal life) usually costs more than term coverage.
A permanent policy includes two components:
- Death Benefit: The amount paid to beneficiaries when the insured person dies.
- Cash Value: A portion of each premium is allocated to a cash value account that can grow over time.
Cash value growth is tax-deferred, and you may be able to borrow from or withdraw funds. However, loans or withdrawals can reduce the death benefit paid to beneficiaries.1
What Are the Benefits of Voluntary Life Insurance?
While voluntary coverage is not mandatory for employees to purchase, it does come with potential benefits.
Lower Cost
Because of group rates, voluntary life insurance policies are typically less expensive than individual policies purchased on your own. With group policies, the risk is spread across a larger group of people, which can result in lower rates than those available through an individual policy.
Easier Application and Payment
Many voluntary life insurance policies offer simplified underwriting, so you may not need to take a medical exam or complete a lengthy health questionnaire.
In addition, most employers allow premiums to be automatically deducted from your paycheck, making payments simple and convenient to manage.
Guaranteed Death Benefit
As long as you pay your premiums, your beneficiaries will receive the death benefit if you die during the coverage period. However, if you die after your coverage ends or your policy terminates because premiums were not paid, no death benefit will be paid to your beneficiaries.
Portability
Many voluntary life insurance policies allow you to keep your coverage if you leave your job or retire. However, you should check with your employer or insurance company to confirm. You may be able to convert the coverage to an individual policy or continue it under a group plan, although premiums may increase.
Other Riders or Add-Ons
Depending on the policy, you might have the option to add riders or additional benefits, such as:
- Accidental death and dismemberment (AD&D): An AD&D rider provides an additional benefit if you die in an accident or experience the loss of a limb, sight, hearing, or another covered function because of an accident.
- Waiver of premium: If you become disabled and cannot work, this rider may waive premium payments so your policy remains active without additional payments.
- Accelerated death benefit: An accelerated death benefit rider allows you to access a portion of the death benefit early if you are diagnosed with certain illnesses. However, it may reduce the total death benefit paid to your loved ones.2
- Child or spouse riders: A child rider may allow you to add your children to your coverage under the primary policy, often at a lower cost than purchasing separate policies. Some riders offer similar coverage options for spouses.
When considering voluntary life insurance, it's important to understand both the potential advantages and limitations. Comparing it with other coverage options can help you determine whether it fits your personal needs.
How to Get Voluntary Life Insurance
Generally, employers make signing up for voluntary coverage straightforward. Contact your human resources department if you have questions about the process.
Enrollment
Depending on your employer's rules and eligibility requirements, there may be limited times when you can sign up for voluntary coverage. For example, you may need to enroll when you first join a company or during an annual enrollment period. Confirm open enrollment dates with your employer.
Your employer may also have eligibility requirements or evidence of insurability for coverage. For example, you may need to work at least 30 hours per week.
Know Your Needs and Options
Voluntary coverage may not be the right choice for everyone. In some cases, it may be a good fit but may not provide enough coverage. Before purchasing any life insurance policy, take time to calculate your coverage needs. This can help you determine how much coverage may be needed to provide support for your loved ones.
Some factors you may want to consider include:
- What is your current income? Consider how your loved ones would manage if they no longer had access to your income and how much savings you have available to cover expenses.
- What are your family's current living expenses and obligations? Review your monthly budget to determine how much your family spends each month. This can help you estimate how much money may be needed to maintain their current lifestyle.
- Do you plan to cover future education expenses? If you have younger children, consider whether the death benefit could help pay for education costs or assist with student loan debt.
Final Thoughts
You have options with life insurance coverage, so finding one that works for your situation can help protect your family and provide financial security long after you're gone.
Footnotes
- Loans will accrue interest. Loans and withdrawals may generate an income tax liability, reduce the Account Value and the Death Benefit, and may cause the policy to lapse. The policy may be issued as a Modified Endowment Contract (MEC) for tax purposes. Any withdrawals or surrenders could result in a taxable event.
- Receipt of Accelerated Benefit payments may adversely affect the recipient’s eligibility for Medicaid or other government benefits or entitlements. They may also be considered taxable by the Internal Revenue Service. You should contact your personal tax advisor for assistance.
