What is Voluntary Life Insurance?

Obtaining a life insurance policy is one way to ensure your family members' financial stability after you are no longer with them.

6 min read
By Prerna
Voluntary Life Insurance
Photo by Juliane Liebermann / Unsplash

It's not always fun to think about what happens after you die, but by planning ahead of time, you're loved ones can be saved from heartaches. Obtaining a life insurance policy is one way to ensure your family members' financial stability after you are no longer with them.

Such policies, however, can be costly on their own, which makes it even more difficult for families to plan their future.

This is where voluntary life insurance can step in.

By enrolling in voluntary life insurance through your employer, you will receive all of the death benefits of a standard life insurance policy without the cost. Voluntary life insurance is a more cost-effective option to help secure your family's financial well-being after you die because your employer sponsors it.

What is voluntary life insurance?

Voluntary life insurance is a type of employer-provided life insurance policy. Voluntary life insurance is typically provided by employers as an optional benefit, with employees paying a monthly premium in exchange for coverage.

This coverage ensures that your designated beneficiaries will receive a cash death benefit if you die.

Because your employer sponsors the insurance offerings, the premiums are frequently significantly lower than those for standalone policies purchased outside of the workplace.

These policies are usually sold in multiples of the employee's salary, but they can also be purchased in lump sums. Voluntary life insurance is typically provided to new employees upon hire or after 60 – 90 days of continuous employment (depending on the company policy).

What are the types of voluntary life insurance?

Voluntary life insurance is divided into whole life insurance and term life insurance. The extent of coverage varies depending on the policy you select. The following section explains the main differences between them, as well as the types of coverage that can be expected if one is chosen over the other:

Voluntary whole life insurance

Voluntary whole life insurance is a policy that lasts the policyholder's entire life and is frequently regarded as the better investment of the two options. Some employers may also allow you to select a whole life insurance policy that will cover a spouse or dependent for the rest of their lives.

As long as the policyholder pays the premiums on time, they will be entitled to a guaranteed death benefit delivered to designated beneficiaries after death.

Voluntary whole life insurance policies work in the same way that permanent whole life insurance policies do in that the cash value accumulates based on your underlying investments.

Voluntary term life insurance

Alternatively, some employers may offer a voluntary term life insurance policy with guaranteed coverage for a limited time. Policies are typically offered for five, ten, or twenty years, and they do not accumulate cash value or allow for variable investing.

Premiums for these policies are lower because insurers believe the policyholder will outlive the guidelines (i.e., they will not have to pay out the death benefit).

While not as strong as voluntary whole life insurance, these policies are frequently a good option for parents looking to ensure financial stability for their children.

Who needs voluntary life insurance?

Almost everyone can benefit from having life insurance, but whether you're fit for voluntary life insurance is primarily determined by your financial needs and ability to qualify for retail market rates based on your lifestyle.

Someone with less-than-perfect health and a risky family medical history, for example, may not be able to get reasonable rates on life insurance products through the marketplace.

However, suppose they work for an employer that provides such benefits. In that case, they may be able to qualify for the coverage they require to protect their family's future at a reasonable cost.

Those in good health and leading a low-risk lifestyle, on the other hand, may benefit more from finding their life insurance.

This is because voluntary life insurance plan rates are determined by a group, which is why employers can offer them to employees. Because of the group rate, healthier individuals may pay more than they would if they purchased a policy of comparable value through the marketplace.

However, if you are a parent, voluntary life insurance can be cost-effective to protect your child's financial future.

This is because voluntary life insurance plans are typically offered at a flat rate regardless of the number of children. Review the group rate table outlined in your employee benefits handbook to make the best decision for you and your family.

How to get voluntary life insurance

Obtaining a voluntary life insurance policy is relatively simple; the most difficult challenge is locating an employer that provides such benefits through the workplace. Once you have a job at a reputable company, getting a voluntary life insurance policy is often just a matter of time and adhering to your employee benefits enrollment period.

Examine the following steps to learn how to obtain voluntary life insurance for yourself and your family:

  • Get hired: The first step in locating a voluntary life insurance plan is to work with a company that provides these benefits. One way to find out if your potential employer offers these benefits is to ask them directly during the interviewing process, which can indicate to employers that you are generous about your candidacy and the welfare of your family.
  • Review options: You will most likely be given an employee benefits handbook when you are hired. Depending on your employment, you may be eligible for enrollment immediately or after a certain period (usually between 60 and 90 days). Consult your employee handbook to find out about available plans, rates, and riders. Set up a meeting with your HR manager to get any questions answered before enrolling in a program that does not meet your needs.
  • Sign up: You will be given a deadline by which you must sign up for any company benefits. Make sure you submit your request for the gifts you desire before the deadline. If you miss the deadline, you'll have to wait until the following year's enrollment period to enrol. Employees are frequently given the option to choose their benefits through an online portal. If you are having trouble accessing the portal and making your selections contact your HR manager right away to avoid missing your deadline or selecting the incorrect coverage option.

After you've successfully enrolled in your voluntary life insurance plan, keep an eye out for emails from your HR team informing you that open enrollment is approaching. The open enrollment period occurs once a year and allows employees to either re-enrol in their chosen benefits or choose something new.

Depending on whether or not your employer upgraded their benefit plans, you may have more options to choose from, so be sure to read any new materials sent your way to select the best coverage.

Key Takeaways

  • Voluntary life insurance is an employer-sponsored policy made available to employees as part of their benefits package.
  • Rates for voluntary life insurance are determined at the group level, resulting in healthier individuals paying more than the market rate.
  • People in poor health or with many dependents often benefit the most from choosing voluntary life insurance through their employer.
  • Signing up for voluntary life insurance is usually straightforward, and employees can always seek the assistance of their HR manager when making their initial selections.

If you work for a company that provides voluntary life insurance benefits, you may want to enrol because of the lower rates and breadth of coverage.

Frequently Asked Questions

What is the best life insurance company?

The best life insurance company is determined by your personal preferences, characteristics, and policy requirements. Choosing the best life insurance company for you can be difficult, so you may want to consult with an independent insurance agent about your needs.

An agent can direct you to the top companies that provide the policy types you require.

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

Voluntary life insurance plans typically allow you to purchase coverage in multiples of $10,000 or multiples of your salary. To determine how much life insurance coverage you require, consider the financial obligations that your family would face if you were to die.

Speaking with a licensed insurance agent may assist you in determining the appropriate amount of coverage.

If you require more coverage than the maximum amount allowed without underwriting, you must either take a medical exam or complete a health questionnaire to qualify. 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 if you can take your life insurance policy with you when you leave. If you have voluntary whole life insurance, your policy is more likely to be portable than if you have term insurance.

Contacting your HR department is probably the best way to learn whether your policy is portable.