What is Voluntary Life Insurance?
How voluntary life insurance works
Usually, signing up for voluntary life insurance means filling out a form with your employer to opt into the group plan. Some companies require certain qualifications (e.g., having worked for the company for at least 90 days, being a full-time employee) to qualify for this coverage.
Like other types of life insurance, voluntary policies cover your life. If you pass away, it will pay a sum of money — the death benefit — to the people you name, also called your beneficiaries. This can allow you to leave a lump sum behind to help your partner navigate life without you, for example.
If you opt into this voluntary coverage, you usually won’t need to go through medical underwriting. In other words, you can skip the medical exam, which can make it possible to qualify for coverage if you otherwise wouldn’t because of a serious health condition.
Some voluntary life insurance plans give you the option to purchase additional coverage beyond the baseline death benefit offered by your employer. You may also be able to add coverage for a spouse or child. Any additional coverages you choose will increase the premiums associated with your voluntary life insurance.
The cost of voluntary coverage
In exchange for the protection voluntary life insurance provides, you pay a premium, usually on a monthly basis. It often takes the form of a payroll deduction.
Because voluntary life insurance gets sponsored by your employer, the premiums are usually more affordable than they would be for the same amount of coverage if you bought it on your own. In some cases, employers will pay all or part of the premiums, too.
Types of voluntary life insurance
Generally, there are two main options for voluntary life insurance:
Voluntary term life insurance
The more affordable option, these voluntary policies cover your life for a set number of years (e.g., 10, 20, 30), called the term. At the end of the term, you’ll need to renew the policy and will likely face much higher premiums because you’ll be notably older at that point.
Voluntary whole life insurance
These policies last your lifetime (assuming you stay eligible for coverage, which might mean staying with the employer that sponsored your voluntary coverage).
Whole life policies also include a cash value component that operates as a savings vehicle within the policy. The cash value will earn a set rate of interest over time.
Because whole life policies offer permanent coverage, they cost more than term policies by a significant margin.
When exploring voluntary life insurance, it’s important to understand the policy’s portability. Essentially, this is your ability to take the coverage with you if you leave your employer or get fired.
This is especially critical if you plan to buy voluntary whole life insurance. Since you’re putting a policy in place to last your lifetime, you want to be sure that protection doesn’t hinge on your employment status.