What Is Voluntary Life Insurance and How Does It Work?

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When most people think about life insurance, the first thing that comes to mind is the obligatory policies required by law. However, there’s another type of life insurance policy known as voluntary life insurance, which isn’t mandatory but can be very beneficial for employees and their families in the event of an untimely death.

In this article, we’ll explore what is voluntary life insurance, who it’s meant for, as well as everything else you need to know about this insurance type.

What Is Voluntary Life Insurance?

Voluntary life insurance is a type of policy that’s not required by law but is often offered by some employers. Unlike some types of life insurance for people over 70, voluntary group life insurance is a type of coverage certain employers sponsor, which means the premiums are often lower than those of an individual term policy and may even be paid by your employer.

The voluntary life insurance meaning is also broadened to allow policyholders to add or increase coverage limits for a spouse or kid, paying an extra charge for it. Voluntary employee life insurance pays out a death benefit to the employee’s named beneficiaries if the employee dies, which they can use to cover burial expenses, among other things.

Main Advantages of Voluntary Life Insurance

Voluntary life insurance offers two main advantages for those who have difficulty obtaining private life insurance:

  • First, individuals who buy voluntary life insurance don’t have to meet the minimum health standards unless they wish to add coverage for themselves or others beyond the qualifying amount. What does having voluntary life insurance mean is that even in the case of the applicant having a pre-existing condition, their premium will be lower than on a private policy.
  • Second, some voluntary life insurance plans are portable, allowing workers to keep the coverage even if they leave their job, which lets those who don’t meet medical criteria for other types of private coverage keep their existing policy.

How Does Voluntary Life Insurance Work?

Voluntary life insurance policies work in much the same way as other types of life insurance policies, including international health insurance ones—if policyholders die during the policy’s term, the death benefit is paid out to their beneficiaries. The difference between basic life insurance and voluntary policies is that the latter is guaranteed to be issued, which means you don’t need to go through a medical exam. As we mentioned, this is highly beneficial for employees who can’t acquire life insurance privately due to a medical condition or other reasons.

Depending on what the employer negotiates and what plans the insurance firm offers, the policy’s terms and conditions will vary. Important thing employees need to consider is whether the coverage is portable if they leave their job. This depends on the group policy, so the employee should verify it when determining is voluntary life insurance worth it.

DID YOU KNOW: Many employers provide basic life insurance coverage to their employees free of charge. If the employee requires a death benefit higher than the amount offered for free, they’ll need to enroll in additional coverage during the company’s open benefits enrollment period and pay the associated premium themselves.

Types of Voluntary Life Insurance

The two main forms of voluntary life insurance are term and whole life. Generally speaking, employers tend to offer term rather than whole life insurance to their employees.

  • Voluntary Term Life Insurance

This insurance policy is only available for a specific period, generally between ten and thirty years. What does voluntary life insurance fail to cover with its term policy are certain features like building cash value and variable investing? As a result, its premiums are less expensive than whole life equivalents, but it would be more difficult to take the term policy with you if you quit your job. Premiums remain constant throughout the policy term but may rise after renewal.

  • Voluntary Whole Life insurance

Voluntary whole life insurance is typically more expensive than term life insurance, sometimes by around 10 times. Top-rated whole-life insurances are a great option because they never expire, and you’re more likely to be able to take it with you when leaving your company. For whole life policies, voluntary life insurance by definition includes a tax-free cash value account that accumulates value over time and pays interest or returns.

Voluntary Life Insurance Policy Components

A voluntary life insurance policy has four components: a death benefit, monthly premium, cash value, and beneficiary.

  • Death Benefit

The death benefit often referred to as the payout or face amount, is the amount of money promised to be paid by the insurance company to the employee’s beneficiaries in the event of the insurer’s death.

  • Premiums

Premiums are the amount of money paid each pay period for insurance coverage. The premium amounts for each age group are determined by the insurance company.

  • Cash Value

If the voluntary life insurance through the employer is a permanent life insurance policy, the cash value serves as a savings account employees can use throughout the duration of the contract. The policyholder of certain permanent policies has the option to use the cash value to pay premiums.

  • Beneficiary

A beneficiary is the person, organization, charity, or business designated by the employee to receive the death benefit when they die.

DID YOU KNOW: Aside from children, there are no restrictions on who you can designate as a beneficiary. In addition, life insurance beneficiaries are unrelated to those in your will, so they don’t have to be identical, although they can.

Who Is Voluntary Life Insurance Best For?

Voluntary life insurance through an employer is a good option for anyone who wants an affordable life insurance policy, but can’t afford a more comprehensive one. Families with young children may find voluntary life insurance especially beneficial, as it can provide financial protection in the event of the insurer’s death.

Apart from those who can’t qualify for coverage from another type of life insurance due to their health problems, voluntary life insurance can also be a great choice for those who already have individual life insurance, but want additional coverage for added financial security.

For example, someone who is qualified to purchase a $100,000 indexed universal life policy before having health difficulties may want to consider voluntary life insurance vs the life insurance they already have, and take the first as a means to increase their current death benefit.

How Can You Get Voluntary Life Insurance

Obtaining a voluntary life insurance policy is quite simple—the most difficult part is finding an employer that provides such perks. To learn how to get voluntary life insurance, follow these steps:

  • Get Hired

The first step in obtaining a voluntary life insurance policy is to obtain a job with a firm that offers these perks. You can find out if a potential employer provides these benefits by asking them directly during the interview process if they provide voluntary life insurance, which will also convey the meaning that you’re serious about your candidacy and the well-being of your family.

  • Review Options

Once you’ve been hired, you’ll most likely be given an employee benefits handbook, where you can check if you’re eligible for voluntary life insurance right away or after a certain period of time (usually between 60 and 90 days), depending on your employer’s policy. To avoid enrolling in a plan not appropriate for you, you can set up a meeting with your HR manager and get answers to any questions you may have.

  • Sign Up

In order to receive any voluntary policy benefits from the company, you’ll have to meet a given enrollment deadline. The difference between basic life insurance vs voluntary one is that for the latter, the staff is often allowed to pick their insurance through an online portal. If you have trouble accessing the portal and selecting insurance, contact your HR manager to avoid missing your deadline or selecting a wrong option.

DID YOU KNOW: After you’ve enrolled in your voluntary life insurance plan, you should be on the lookout for emails from your HR staff to remind you in time for the company’s open benefits enrollment period which usually occurs annually and is a chance for employees to either renew their benefits or choose something new.

Key Takeaways

Voluntary life insurance is a type of policy certain employers sponsor, meaning the premiums are often lower than purchasing an individual term policy.
The difference between life insurance vs voluntary life insurance is that the latter is guaranteed to be issued, meaning there are no minimum health standards set.
The two main forms of voluntary life insurance are term life insurance and whole life insurance.
Some of the main benefits voluntary life insurance offers include portability, convertibility, accelerated death benefit, and payroll deduction.

What Benefits and Riders Does Voluntary Life Insurance Offer

The question “is voluntary life insurance worth it?” is often easy to answer after looking at the following riders and added benefits some voluntary life insurance companies offer:

  • Portability

This allows a worker to keep their voluntary life insurance policy even after quitting their job or being terminated.

  • Convertibility

An employee can convert a term life policy to a permanent one, sometimes even without providing evidence of insurability to the life insurance company.

  • Accelerated Death Benefit

If an employee becomes sick and is determined to have two years or less to live, a portion of the death benefit may be paid in advance, with the remainder being paid to the policy’s beneficiaries when they die.

  • Payroll Deduction

How does payroll deduction in voluntary life insurance work? This is done by having an employee’s monthly premium deducted directly from their monthly wages, which is generally the most efficient way to make regular payments on a voluntary life insurance policy.

  • Spouse and Dependent Coverage

Some voluntary life insurance policies allow employees to cover their spouses and dependent children on the same policy. This can be beneficial both in terms of finances and ease, as it lets you keep track of only one policy instead of multiple ones for each family member.

Conclusion

All things considered, voluntary life insurance is a good option for those looking for an affordable way to provide financial protection for their loved ones. What does voluntary life insurance cover can prove to be very important for families in the event of an unexpected death, so it’s important to understand how these policies work in order to choose the one that best suits your requirements.

FAQ

Should I get voluntary life insurance?

This is a difficult question to answer, as it depends on many factors such as your financial situation, your family’s needs, and your overall health. However, voluntary life insurance can be a good idea for anyone looking for an extra layer of protection in case of an unexpected death.

Is voluntary life insurance pre tax?

Many people wonder is voluntary life insurance pre tax or post tax, and the answer is that it’s pre-tax. Since most voluntary benefits can be paid with pre-tax income, this may save businesses and their employees money.

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

The main difference between the two types of life insurance is that voluntary life insurance typically has more generous benefits than basic life insurance. For example, voluntary life insurance may cover voluntary spouse life insurance and voluntary child life insurance, while basic life insurance typically doesn’t.

ABOUT AUTHOR

Being a literature graduate, researching became second nature to me and I used this skill to write in-depth reviews of products and services! When not writing, you will find me curled up on a comfy mattress with lots of pillows and a book!

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