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Voluntary Life Insurance Guide

Voluntary Life Insurance Guide
Elizabeth Rivelli
Updated November 8, 2021
4 Min Read

Having life insurance is beneficial for many different reasons. Depending on the policy, it can provide extra income during retirement, allow you to leave money to heirs, and even diversify your investment portfolio. 

While many people purchase an individual life insurance policy through a private company, you may have the option to get life insurance through your employer. This is called voluntary life insurance.

If your employer offers voluntary life insurance as part of your benefits package, you probably have a lot of questions. What’s different about voluntary life insurance? Why should I consider it? Is it worth the money?

In this guide, we’ll answer those questions and help you decide if voluntary life insurance is right for you. Let’s start with the basics...

What is voluntary life insurance?

Voluntary life insurance is a type of life insurance that is offered by your employer as an employee benefit. In terms of coverage, it’s almost identical to a regular life insurance policy that you would purchase on your own.

When you start a new job, you can choose to purchase voluntary life insurance from the provider that your employer works with. However, it’s entirely optional. If you decline coverage initially, you can typically purchase a policy during the annual open enrollment period.

How does voluntary life insurance work?

Voluntary life insurance works the same way as basic life insurance: It pays money to your named beneficiary after you pass away. The money can be used for any purpose and is tax-free in most cases.

To keep your voluntary life insurance policy in force, you’ll pay a monthly premium that comes out of your paycheck. Because voluntary life insurance makes you part of a group, the rates are typically lower than you’d get on your own if you bought individual life insurance.

Another thing to know about voluntary life insurance is that it’s usually guaranteed issue. That means you automatically qualify for coverage and you don’t need to have a medical exam, complete a health questionnaire, or provide any medical information.

For comparison, when you buy life insurance on your own, it’s usually medically underwritten. That means if you have a pre-existing health condition, you may not qualify or you’ll pay a much higher rate because of it.

Types of voluntary life insurance

Like basic life insurance, there are two main types of voluntary life insurance: Term life and whole life. Here is the difference between the two:

  • Term life insurance: Term life insurance provides coverage for a certain “term” or period of time, usually between 10 and 30 years. In general, it’s the most affordable life insurance you can buy. It is designed strictly to protect your family in the event of your death. It doesn’t build cash value, and you can’t borrow against it. Most voluntary life insurance policies offered by employers are term life policies.
  • Whole life insurance: Whole life insurance is less common in a voluntary life policy, but some employers offer it. Usually, it’s more expensive than a term life policy. For the higher premium that you pay, however, you get the satisfaction of knowing that your policy is building cash value that you may be able to access in the future or even borrow against.

One thing to note is that most employers don’t offer universal life insurance policies as voluntary coverage. If you’re looking for this type of coverage, you will probably need to purchase an individual policy on your own.

Difference between basic life insurance and voluntary life insurance

The difference between basic and voluntary life insurance is how you get the coverage and how much it costs.

With basic life insurance, you purchase the policy on your own. You get to choose the insurance company, the type of policy, and the coverage limit. You’re responsible for paying 100% of the premium out-of-pocket, and the rates are generally higher than with voluntary coverage.

With voluntary life insurance, you get life insurance through your employer. You aren’t able to choose the provider, and there are usually limited policy options. However, the premium is typically much lower, and it comes directly out of your paycheck.

Is voluntary employee life insurance worth it?

Voluntary life insurance is worth it depending on your specific circumstances.

If you don’t have individual life insurance, or life insurance through your spouse, you may want to consider voluntary life insurance. This is especially true if you’ve applied for life insurance in the past and have been denied due to a pre-existing health condition.

Even if you have other life insurance, you may want to consider voluntary life insurance to add to your existing coverage. Voluntary life insurance can be a good way to provide additional protection for your family in the event of your death.

Not all voluntary life insurance policies are created equal, though. If you think voluntary life insurance is right for you, look carefully at the coverage your employer offers to see if it will meet your needs. Here are a few questions to ask:

  • Is this term life insurance or whole life insurance?
  • How much coverage can you get? Will one of these options meet the needs of your family?
  • How much will be deducted from your pay for the coverage you need?
  • Are there any rules that may limit the amount of money that’s paid to your family? For example, is there a limited payout within the first two years?
  • If you leave your current job, what happens to your coverage? Some voluntary life insurance programs are portable, which means you can take the coverage with you or convert it to a similar policy from the same insurance company. 

Voluntary life insurance has become a popular option in many employee benefits packages. If you are offered this coverage, consider it carefully so that you can make the right decision for yourself and your family.

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