It is additional life insurance coverage that is made available by an employer on an optional basis. When you purchase voluntary life insurance, you increase the total amount of your life insurance policies as well as provide a higher benefit for your dependents.
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How Does Voluntary Life Insurance Work?
Most employers provide basic group life insurance as part of their employee benefits registration. You can also get an additional voluntary life insurance policy, which is an optional insurance that covers the gaps in the group policy. Knowing how life insurance works will help you decide if the additional expense is justified.
In some cases, mandatory group policies will include voluntary life insurance or optional life insurance, as it is referred to in some cases as supplemental coverage. This benefit is usually offered alongside basic group life insurance coverage by some employers. Eligible employees can opt for voluntary life insurance coverage and pay for it through a salary reduction plan. Some employers restrict this benefit by requiring an employee to work a specified minimum number of hours each week.
Assuming the insured is still alive during the policy period, voluntary life insurance, just like standard life insurance, gives a death benefit to the policy’s beneficiary. The key difference is that this coverage is offered through the employer, which enrols the worker and pays for it. After signing up for voluntary life insurance, money is taken from your salary to pay the premiums.
Often, the amount of coverage provided ranges within a certain cap and is set as a multiple of the employee’s salary. For example, an employer could let a worker select coverage that equals three times his salary, with the maximum being $300,000.
Some policies cover only while you’re working for the specific company and may cover outside employment, too. Others are portable—for instance, you could keep the policy when changing jobs; however, the employer might shift the full premium cost to you.
There may be some restrictions, but in many cases, coverage for spouse or child dependents is also available.
Types Voluntary Life Insurance
Typically, with voluntary insurance coverage, you are permitted to choose either whole-life or term life insurance. Some employers might add accidental death and dismemberment as another additional choice. Here are the differences between the types of voluntary life insurance.
What is Voluntary Term Life Insurance
Voluntary term life insurance covers life for a certain duration, like a decade, two decades, or thirty years. The policy ceases when the term is over, except when the policy is renewed.
What is Voluntary Whole Life Insurance
Voluntary whole life insurance is a type of permanent insurance wherein the policy exists as long as the premium is paid. A part of the premiums is allocated to an investment account, which grows over time. The insured has the option of borrowing against or withdrawing from the cash value at any point in time.
Voluntary Accidental Death & Dismemberment
This form of life insurance covers a death benefit with only a few conditions and or when certain non-fatal accidents occur. Some employers provide accidental death and dismemberment insurance as a stand-alone option, while others provide it as a rider to an existing policy. Since it covers limited causes of death, it is normally cheaper than other forms of life insurance.
Voluntary Term Life Insurance as A Supplement Example
Some participants elect to have voluntary term insurance to complement their whole life insurance. Jordan, for instance, is the head of a family who has a spouse and kids and has purchased a whole life insurance policy for $50,000. Based on their financial needs analysis, this will not be enough. The insurance broker proposes a solution: Jordan maintains $300,000 while the children are still minors.
Jordan’s employer offers voluntary term insurance at a reasonable cost. Jordan opts to elect coverage from this policy and supplements it to the existing plan until the children reach the age of majority.
What is Voluntary Dependent Life Insurance?
In terms of the death benefit, it may be payable to the employee after the death of an insured dependent or a spouse, children and any other family members can also be included in the policy provided they are listed in the plan.
Is It True That Voluntary Term Life Is Group Insurance?
Yes. Voluntary term life insurance is included in the group policy of the organization. For this reason, most employees in the organization will be able to obtain insurance in a blanket policy without medical qualifications. This group plan is usually less costly than individually owned plans.
How Much Voluntary Term Life Insurance Should I Have?
Employers often set the general rule on voluntary term insurance. Common restrictions see this form of insurance benefit ranging from 1 to 2 times an individual’s compensation annually. Other companies set their caps from $50,000 to $250,000 worth of coverage.
Pros and Cons of Voluntary Life Insurance
Pros
- The most important advantage: life insurance protection is within reach. They need minimal qualification criteria and do not require a medical examination. 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.
- Payment of premiums can be made directly from the salary: The onus of making a separate payment for life insurance each month to keep the policy valid no longer lies with you.
- Lower Rates on Voluntary Policies: Because there are more employees enrolled, the employer can get more policies at a lower group rate, thereby making voluntary life insurance more affordable.
- After securing coverage for yourself, your employer might allow you to purchase plans for your spouse and dependent children as well. However, insurance policies tend to be limited in their coverage. While the add-on benefits might not be substantial, the premiums are meagre in comparison to individual plans.
Cons
- The insurance provider and your employer set the cap limit to how much additional insurance you may avail. The added features might help in bulking up your existing insurance plan, but the coverage provided may fall short of satisfying the needs of your benefactors.
- Leaving the job may result in the loss of your insurance policy. While some employers do permit voluntary conversion of a life policy to an individual plan, this largely depends on the company. Even if you are permitted to “port” the plan, brace yourself for higher premiums.
- The insurance policy that you can avail is limited to what your employer provides and tends to only include basic whole life insurance or term life insurance.
What is the Pricing for Voluntary Life Insurance?
Voluntary life insurance retirement policies are cost-friendly in relation to other retirement plans. However, they tend to be more expensive than the basic free group life coverage that your organization provides. The payment amount for each period is different for each employee and is determined by many factors such as age, insurance type, and coverage needed.
Is there a Need for Voluntary Life Insurance?
Voluntary policies are always useful when an existing organization’s group life policy lacks adequate coverage or in cases where no policy exists. For example, the death benefit should adequately account for expenses like education for your children, mortgage, daily living costs, etc.
If an individual’s medical history renders affordable life insurance inaccessible to them, voluntary life insurance becomes a reliable solution. In some situations, your coverage can begin instantly.
The Bottom Line
If life insurance is provided through your employer’s benefits, and you have the option to purchase additional coverage, it may be worth considering voluntary life insurance. It can be an easy way to manage additional payments. However, do check if the policy lapses when you leave the company, in which case you may need to buy additional life insurance yourself in case you need to change jobs.
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