When it comes to life insurance plans, there are so many different options to choose from. Different policies offer different advantages and different coverages. Two of the most common types of life insurance policies include term life (only effective for a predetermine period of time) and permanent life (insurance coverage that is effective for the policy holder’s entire life). Forms of permanent life insurance can include whole life, universal life, or variable universal life insurance.
There is another type of life insurance that you may not have heard of: voluntary life insurance. What is it and how does it work? Below, you will find answers to these questions and more.
Voluntary Life Insurance Explained
Voluntary life insurance is a type of life insurance policy that offers a death benefit to beneficiaries of a policy when the policy holder passes away; much like a term or permanent life insurance policy. However, voluntary life insurance differs from other types of life insurance policies in that it is a benefit that employers can offer their employees; this type of policy cannot be purchased by individuals. In that way, it is truly voluntary that the employers provide the coverage. The employer also has the option to terminate coverage if it is term coverage, though the employee with have the opportunity to continue paying for coverage on their own without additional underwriting.
How Does Voluntary Life Insurance Work?
Voluntary life insurance, as mentioned, is a form of life insurance that is offered by employers as a benefit to their employees. The employee is responsible for paying the monthly premiums on this type of insurance policy, and in exchange, the insurance provider will pay out the amount the policy covers (a death benefit) to a named beneficiary when they insured passes away.
With voluntary insurance, employer sponsorship brings the cost of premiums for life insurance down. In fact, the premiums are considerably less expensive than the premiums for individual life insurance policies.
Types of Voluntary Life Insurance
There are two main types of voluntary life insurance:
- Voluntary whole life
- Voluntary term life (also known as group term life insurance)
With voluntary whole life, the insurance coverage is permanent; in other words, the insured will be covered for the rest of their life. This type of insurance also provides the insured with the option to cover his or her spouse or children, and the spouse would also be covered for his or her entire life. However, generally, the amount of coverage for spouses or children will be lower than the amount that the employee (the policy holder) would be covered for. And, as with an individual whole life insurance policy, a voluntary whole life insurance policy accumulates cash value.
With voluntary term life insurance, the coverage is only effective for a predetermined amount of time; 5, 10, 20, or 30 years, for example. Another type of voluntary coverage does not last for a specified term, but for as long as the employee is employed by the employer offering the coverage. Either way, once the term expires, the coverage will also expire. Additionally, just like with individual term life insurance, voluntary term life insurance does not accumulate cash value; the value of the policy remains the same. The value of either type of voluntary life insurance will vary. It can either be offered in multiples of the salary of an employee, or it can be a stated value; $50,000 or $100,000, for example. It may also be a multiple of your annual salary.
When is Voluntary Life Insurance Available?
If you work for a company that offers voluntary life insurance and you elect to receive this benefit, your coverage will begin as soon as you are hired, or shortly after. Employees do have the option to opt out of voluntary life insurance, meaning that they do not have to take it. If they do decide to opt out, they may be able to decide to take the coverage during the next open enrollment period or after a major life event, such as marriage, the birth of a child, or a divorce.
Should You Consider Voluntary Life Insurance?
Voluntary life insurance can be beneficial. As mentioned, the premiums for either voluntary whole life insurance or voluntary term life insurance are generally much lower than they are for individual policies, which means you can save a good bit of money. Furthermore, the coverage that these policies offer works the same as an individual policy. Beneficiaries will receive death benefits when the insured passes away.
However, while voluntary life insurance can be beneficial, it is important to understand that you may not be able to retain your coverage should you decide to stop working with your company. You may have the option to continue the coverage (port it) or change it to a new individual policy (convert it); but, if you decide on this option, you will be responsible for paying the premiums.
The Bottom Line
If you work for a company that offers voluntary life insurance as a benefit, it could be worth your while investing in the insurance. If you have questions about the policy or you are not sure if it is the right choice for you, speak to a reputable insurance agent. However, in most cases, voluntary life insurance is considered an employer benefit that is worth taking advantage of.
