How Does Voluntary Life Insurance Work?

Voluntary life insurance, also known as supplemental life insurance, is an optional benefit offered by some employers in addition to their basic group life insurance benefit. Employees can purchase voluntary life insurance coverage through payroll deductions. Employers may set eligibility criteria, such as a minimum number of weekly work hours.

Like standard life insurance, voluntary life insurance provides a death benefit to the beneficiary named on the policy if the insured passes away while the policy is active. The biggest difference is that enrollment and payment for this coverage are done through the employer. If you opt in to voluntary life insurance, premiums are deducted from your paycheck.

The voluntary insurance coverage amount is often based on a multiple of the employee’s salary, subject to a maximum amount. For example, an employer may allow an employee to choose coverage of three years’ salary, up to $300,000.

Some policies are only effective while you’re employed with the company. Others may be portable—allowing you to keep the policy even if you change employers—but you may be responsible for the full premium.

You may also have the option to obtain coverage for your spouse or dependent child, though this coverage often comes with limits.

Types of Voluntary Life Insurance

You can typically choose between term and whole voluntary life insurance. Some employers may offer accidental death and dismemberment as another insurance option. Here are the differences between the types of voluntary life insurance:

Term Life Insurance

Voluntary term life insurance lasts a specific period of time, such as 10, 20, or 30 years. Coverage ends when the term expires unless the policy is renewed.

Whole Life Insurance

Voluntary whole life insurance is a type of permanent insurance, in which the policy doesn’t expire as long as premiums are paid. A portion of the premium goes into a cash value account that accumulates value over time. The policyholder can borrow against or withdraw from the cash value at any time.

Accidental Death & Dismemberment

This coverage offers a death benefit only in certain circumstances or non-death accidents. Some employers offer accidental death and dismemberment as a separate insurance policy, while others offer coverage as a rider. It covers fewer causes of death, so it may be less expensive compared to other types of life insurance.

Pros and Cons of Voluntary Life Insurance

Pros

• Accessible life insurance coverage: Policies don’t usually require a medical exam and are easy to qualify for. As long as you apply during the eligibility period and work the required number of hours at your job, you’ll be covered for the guaranteed issue amount.
• Premiums are deducted from your paycheck: You don’t have to remember to make a separate life insurance payment each month to keep your policy active.
• More affordable: Voluntary life insurance is typically less expensive than standard life insurance because employers can negotiate a lower group rate based on the number of employees enrolled.
• Coverage may be available for your spouse and dependents: After purchasing coverage for yourself, your employer may allow you to add coverage for your spouse and dependent children. While coverage amounts may be low, the cost is nominal compared to purchasing an individual policy.

Cons

• Limited coverage amounts: Your employer and the insurance provider determine the maximum amount of coverage you can add. While it can supplement your existing coverage, this amount may not meet the needs of your beneficiaries.
• Coverage is tied to employment: You may lose coverage if you leave your job. Some employers allow you to convert your voluntary life insurance policy to an individual policy, but it varies by employer. If you’re able to “port” your policy, expect your premiums to increase.
• Limited options available: Your insurance options are based on what your employer offers, and may include only basic term and whole life insurance.

How Much Does Voluntary Life Insurance Cost?

The cost of voluntary life insurance is less than a standard life insurance policy, but more than the free basic group life insurance your employer offers. The cost per pay period varies and is based on your employer’s group rates, your age, the amount of coverage, and type of insurance.

Do I Need Voluntary Life Insurance?

You may need voluntary life insurance if your employer’s group life insurance isn’t enough to cover your beneficiaries’ needs and you don’t have any other existing policies. For instance, your death benefit may need to be high enough to cover your children’s education, mortgage payments, and everyday expenses.

Voluntary life insurance is also a solution if your medical history makes it difficult to access affordable individual life insurance. Guaranteed issue plans allow you to get approved for coverage without completing a medical exam or health questionnaire. Coverage may start immediately in some cases.

The Bottom Line

Voluntary life insurance may be a good option to consider if your employer offers it, you’d like additional coverage, and you want an easy way to pay for coverage. Just be sure to find out if your coverage ends if you leave your job. If it does, you may consider buying additional life insurance on your own to cover you in case you lose your job or take a position at a different company.

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