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Optional Life Insurance

What is Optional Life Insurance?

Optional life insurance is additional coverage you add to the life insurance offered through your employer. Choosing optional life insurance increases the amount your beneficiary will receive when you pass away.

Understanding life insurance through your employer

While people can — and often do — buy life insurance on their own, some individuals are fortunate enough to work for an employer that offers life insurance as part of their benefits package. This is called group life insurance.

When an employer buys a group life policy, it extends a death benefit (a sum of money) to be paid out to the people of the employee’s choosing (their beneficiaries) if they die while the policy is in effect. Because the individual employee’s coverage is part of the group plan, it usually doesn’t require much underwriting. Most employer-sponsored life insurance policies don’t require a medical exam, for example.

The downside, though, is that life insurance you get through your employer generally comes with a limited death benefit. Your beneficiaries might receive something like one to four times your annual salary when you die, for example. In contrast, a life insurance policy you buy on your own might come with a death benefit of ten times your salary or more.

Because group life insurance through an employer comes with a smaller death benefit, some employers also offer optional life insurance.

How optional life insurance works

If you choose the optional coverage, you increase the death benefit your loved ones will get when you’re gone. Because it’s still a part of the group life plan, optional life insurance usually doesn’t require any additional underwriting.

It does, however, come with a cost. Most employers who offer group life insurance cover the cost of all or a portion of the associated premiums. With optional life insurance, however, the cost falls entirely to you. That said, because it’s within the group plan, it may be more affordable than other coverage options, especially if you have a preexisting health condition.

Plus, optional life insurance can be a convenient way to increase what you leave behind because you can generally pay for it through a payroll deduction. This ensures that your premiums get consistently paid, keeping the protection in force and avoiding a policy lapse.

All that said, before diving into optional life insurance, you may want to shop around for standalone policies. Knowing what life insurance you purchased on your own would cost can help you determine if adding optional life insurance to your employer-sponsored coverage is the best path for your needs and budget.

Optional life insurance and portability

As you compare the cost and convenience of optional life insurance against a standalone policy, make sure you look into the optional coverage’s portability. This is your ability to take the policy with you if you quit, get fired, or retire.

If your optional life insurance isn’t portable, you could pay premiums for years, only to lose the protection the optional coverage offers if your employment status changes. In that case, it’s probably better to get a standalone policy to offer the additional protection you want to leave behind.

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