Voluntary life insurance

Voluntary life insurance is a type of group life insurance that some employers offer as an optional benefit. Since it’s a benefit available to all employees, life insurance companies offer it at a group rate, which can be cheaper than buying coverage individually. While not everyone needs voluntary life insurance coverage, it can be beneficial to those who only need a small amount of coverage, or who are in poor health or have already been turned down by another company.

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Whole life insurance combines life insurance with an investment component.

  • Coverage for life
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  • 3 variations of permanent insurance: whole life, universal life and variable life include investment component

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What is voluntary life insurance?

Voluntary life insurance is an optional group life insurance policy offered by select employers. Since employers sponsor voluntary life insurance policies, the premiums are usually slightly lower than those of an individual term policy and may even be covered by your employer. Policyholders can typically increase coverage limits or add coverage for a spouse or child for an additional fee. Like other forms of life insurance, voluntary life insurance pays out a death benefit to the employee’s named beneficiaries, should the employee pass away. Even if your employer pays part or all of the premium, you still get to choose your beneficiary.

For employees who have trouble qualifying for private life insurance, voluntary life insurance has two main benefits. First, voluntary life insurance applicants typically won’t have to undergo a medical exam unless they choose to add additional coverage for themselves or others beyond a predetermined amount. That means if the applicant has a pre-existing condition, their premium will likely be lower than on a private policy. In some cases, the employer will cover the premiums up to a certain coverage limit. Second, some voluntary life insurance policies are portable, which means that employees can keep the coverage if they leave their employer. This would allow those who cannot medically qualify for other forms of private coverage to keep their existing policy.

Who needs voluntary life insurance?

People who cannot medically qualify for affordable life insurance coverage in the private market can typically qualify for a voluntary life insurance policy since no medical exam is required under a certain coverage amount. For these people, choosing a voluntary life insurance policy through their employer is likely a much cheaper option than purchasing guaranteed issue life insurance on their own, keeping in mind that there is usually a relatively low cap set on the initial coverage limit for which no medical exam is required.

Voluntary life insurance may also be useful for someone who already has an individual life insurance policy but wants additional coverage for added financial security. For example, someone who qualified to buy a $100,000 indexed universal life policy before their health problems began may want to supplement their current death benefit by participating in their employer’s voluntary life insurance program for a relatively low or, in some cases, no premium if their employer foots the bill.

Types of voluntary life insurance

There are two basic types of voluntary life insurance: term and whole life. Most often, employers offer voluntary term life insurance rather than voluntary whole life insurance.

Voluntary term life

Employers are more likely to offer voluntary term life insurance than whole term life insurance. Voluntary term life insurance stays in effect for a specific period, typically between 10 and 30 years. Term policies are significantly cheaper than whole life policies, but it’s less likely that you’ll be able to take a term policy with you when you leave your employer.

Voluntary whole life

Voluntary whole life is more expensive than term life insurance, sometimes by more than ten times. Whole life never expires, and unlike term policies, it’s more likely that your employer will allow you to take it with you when you leave the company. Voluntary whole life insurance also comes with a tax-free cash value account that builds value over time and gains interest or returns.

How to get voluntary life insurance

In order to obtain voluntary life insurance, you must first be employed by a company that offers this benefit, or be a member of an affiliated organization, such as a credit union. You cannot obtain this type of life insurance in the private marketplace.

Enrollment

If your employer offers voluntary life insurance, you typically enroll in this program as soon as you are hired or soon after that, such as after a period of 90 days. In some cases, you will renew this benefit during your company’s open benefits enrollment period. You may be able to purchase additional coverage for yourself or a family member, in which case you would typically have to fill out additional paperwork, agree to additional fees and might be subject to a medical exam or questionnaire. During your enrollment period, you might get the option to decide whether or not you want additional life insurance riders on your policy, such as for long-term care or accidental death.

Portability

If you leave your employer, your voluntary life coverage may be portable, depending on the terms of coverage that your employer offered. You may have the option of converting your term coverage into permanent coverage that you can keep regardless of where you work. You may want to check with your human resources department to nail down your policy’s portability and conversion option details.

Frequently asked questions

    • What is the best life insurance company?

      The best life insurance company depends on your individual preferences, personal characteristics and policy needs. Choosing the right option for you among the best life insurance companies can be daunting, so you may want to talk with an independent insurance agent about your needs. An agent can point you to the top companies that offer the policy types you want.

    • How much coverage should I get from this type of plan?

      Typically, voluntary life insurance plans allow you to purchase coverage either in multiples of $10,000 or as multiples of your salary. To determine how much life insurance coverage you need, you may want to calculate the financial responsibilities that your family would be left with if you were to pass away. For example, do you have an outstanding mortgage or children to put through college? Speaking with a licensed insurance agent may help you decide how much coverage is right. If you need more coverage than the maximum amount allowed without underwriting, then you’ll have to either take a medical exam or complete a health questionnaire to qualify for additional coverage. This may result in higher premiums or even denial of coverage, depending on your health.

    • How can I find out if my life insurance is portable?

      Your employer should be able to tell you whether you have the option to take your life insurance policy with you after you leave. If you have voluntary whole life coverage, your policy is more likely to be portable than term coverage. Contacting your HR department or your life insurance company representative is likely the best way to find out specifics about whether your policy is portable.

    • What is the difference between basic life insurance and voluntary life insurance?

      Basic life insurance is paid for by the employer and typically offers a specific amount of coverage, while voluntary life insurance is an optional benefit where you can choose the coverage amount and usually have to pay for the additional coverage. Some employers will pay for a certain amount of coverage for the employee who chooses voluntary coverage, but anything above that is at the expense of the employee.

    • Can you drop voluntary life insurance at any time?

      You may be able to drop voluntary life insurance at any time, but it is best to speak with your employer or the human resources department to make sure. Some life insurers allow you to drop voluntary benefits at any time, while others only allow changes during open enrollment for benefits, which only happens once per year.

    • Does voluntary life insurance cover accidental death?

      Yes, voluntary life insurance covers accidental death. Accidental death and dismemberment (AD&D) insurance might also be an available benefit you can choose. This policy will provide additional coverage if the insured dies an accidental death or loses a body part, such as an arm, leg or eye. Some voluntary life insurance policies offer an AD&D rider, which may be cheaper than a separate AD&D policy.

Artur Starke
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