Voluntary Life Insurance

Voluntary life insurance is a financial protection plan that provides a cash benefit to a beneficiary upon the death of the insured.  Voluntary life insurance is an optional benefit offered by employers. The employee pays a monthly premium in exchange for the insurer's guarantee of payment upon the insured's death. Employer sponsorship generally makes premiums for voluntary life insurance policies less expensive than individual life insurance policies sold in the retail market. 

Many insurers provide voluntary life insurance plans with additional benefits and riders. For example, a plan might feature the option to purchase insurance above the guaranteed issue amount. Depending on the amount of increase, the policyholder may be required to submit proof that they meet minimum health standards. Another is coverage portability, which is the ability of a policyholder to continue the life policy upon termination of employment. Each employer has their guidelines for porting a policy. However, it is typically between 30-60 days after termination, and it requires the completion of paperwork. 

Another option is the ability to accelerate benefits, whereby the death benefit is paid during the life of the insured if he or she is declared terminally ill. There is also the option to purchase life insurance for spouses, domestic partners, and dependents as defined by the insurance company. Lastly, an immeasurable benefit offered by most employers is the option to deduct premiums from salary. Payroll deductions are convenient for the employee and allow for the effortless and timely payment of premiums.

In addition to additional benefits, some insurers provide optional riders, such as the waiver of premium and accidental death and dismemberment riders. Most often, riders come at issue and for an additional fee.

There are two types of voluntary life insurance policies provided by employers: voluntary whole life, and voluntary term life insurance. Voluntary term life insurance is also known as group term life insurance. Face amounts may be in multiples of an employee's salary or stated values, such as $20,000, $50,000, or $100,000.

Voluntary whole life protects the entire life of the insured. If whole life coverage is elected for a spouse or dependent, the policy protects their entire lives, as well. Typically, amounts for spouses and dependents are less than amounts available for employees. Just as with permanent whole life policies, cash value accumulates according to the underlying investments. Some policies only apply a fixed rate of interest to the cash value, whereas others allow for variable investing in equity funds.

Voluntary term life insurance is a policy that offers protection for a limited period, such as 5, 10, or 20 years. Building cash value and variable investing are not characteristics of voluntary term insurance. As a result, premiums are less expensive than the whole life equivalents. Premiums are level during the policy term but can increase upon renewal.  

Some participants choose voluntary term life as a supplement to their whole life insurance. For example, a married employee with children has a $50,000 whole life insurance policy. After receiving a financial needs analysis, it is determined that their life insurance is insufficient. The life insurance broker suggests that they maintain at least $300,000 in life insurance while her children are minors. Her employer offers voluntary term life insurance with reasonable premiums, and she elects the coverage to supplement her existing coverage until her children reach the age of majority.

Voluntary life insurance is often available to employees immediately or soon after hire. For employees who opt out, coverage may next be available during open-enrollment or after a qualifying life event such as marriage, the birth of a child, divorce, or adoption of a child. Selecting the right type of voluntary life insurance requires examining current and anticipated needs and is dependent on each person's circumstances and goals.