What is voluntary life insurance?
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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states.
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Reviewed by
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Licensed Insurance Agent
UPDATED: Mar 27, 2022
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Here’s the Scoop
Voluntary life insurance is a benefit employers offer to their employees
Rates for voluntary life insurance are lower because the employer negotiates with the insurance company
There are many benefits from voluntary life insurance policies
Voluntary life insurance is a financial benefit you can get through your employer. Much like private life insurance, voluntary life insurance offers a death benefit, or lump-sum amount, to a beneficiary after the policyholder’s death.
Employers offer voluntary policies to employees who meet specific requirements, but it is entirely up to you to accept them. Sometimes you can purchase extra coverage for your spouse or children. If you do qualify, you should know what a voluntary life insurance policy entails before you accept it.
How do you get voluntary life insurance?
Unlike standard life insurance, you must purchase voluntary life insurance through an employer. Voluntary life insurance comes as group life insurance that employers purchase for their employees. Employers can offer several kinds of voluntary life insurance plans as an additional — but optional — benefit.
Instead of the policyholder negotiating with the insurance company, the employer does so, saving you plenty of time and hassle. Plus, it’s an easy option for individuals struggling to qualify for life insurance policies in the private market.
However, not every employee qualifies for voluntary life insurance. You’ll need to meet specific guidelines if you’re interested, such as working at least 30 hours a week. Though the exact requirements vary from employer to employer, ask yours about its guidelines.
Below are the steps to getting voluntary life insurance:
Get hired. Only employers can offer voluntary life insurance, meaning you’ll need to get a job first. Not all jobs offer this benefit, so you’ll want to ask the hiring manager during the interview process.
Go over options with HR. After getting the job, you’ll receive paperwork and an employee handbook, usually containing insurance information. You should be eligible for benefits after a specific period, so review your options. If you have any questions, you can set up a meeting with the company’s human resources department.
Sign up for a policy. Lastly, you’ll have to sign up for the policy. Submit the signed documents before the deadline. If you wait too long, you won’t be able to sign up until the following year.
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Are there different types of voluntary life insurance?
There are two types of voluntary life insurance: term and permanent life insurance.
Voluntary term life insurance
Voluntary term life insurance is the most common form of voluntary life insurance employers offer. Term life insurance is exactly what it sounds like; it covers the employee for a set period. Usually, these terms can range from one to 30 years. If the policyholder dies within the term, the death benefit gets paid out to the beneficiary.
Once the policy term is up, you can either renew or cancel. However, if you don’t renew, the company keeps all of the money you paid to the insurer. Term policies are often the cheapest option, but be aware that you might not be able to keep the policy if you leave your employer.
Voluntary permanent life insurance
Permanent voluntary life insurance is arguably the better of the two options. It’s not as common for employers to offer this option, and the rates are more expensive.
However, permanent life insurance lasts for the policyholder’s life, so there’s a guaranteed death benefit for the beneficiaries. Also, despite how expensive the rate is, the amount you pay each month won’t change. Permanent policies also have a cash value option where some of the money gets invested and kept as savings for the employee.
What are the benefits of voluntary life insurance?
The most significant benefit of voluntary life insurance is the death benefit. The death benefit is a cash amount given to named beneficiaries upon the insured’s death.
Another reason employees accept voluntary life insurance from their employees is that you can get it without a medical exam in most cases, which is excellent for people with more serious medical conditions.
Many insurance companies also offer additional benefits or “riders” for an extra cost. Here are some of the most common voluntary life insurance policy riders:
Portability. If you decide to leave your employer, you may be able to take your voluntary policy with you. There may be the option to convert your voluntary life insurance into more permanent coverage you can take wherever you work. You’ll have to check with human resources to see if there’s an option to add portability to your coverage.
Convertibility. Eligible employees can convert their policy to another without a physical exam. They can go from term life insurance to permanent life insurance.
Accelerated death benefit. Some insurance companies offer an accelerated death benefit if the insured person becomes terminally ill. In this case, you can access the death benefit amount while the covered individual is still alive.
Deducted from pay. You can have the policy premium deducted from your paycheck.
Coverage for spouses and dependents.
You can get policies for your spouse and dependents for an additional cost.
How much is the payout for voluntary life insurance?
One of the most significant considerations for life insurance is the payout amount. The general rule of thumb is to have 10 or more times your yearly salary in life insurance.
For example, if a person made $75,000 a year, they would want at least $750,000 in their life insurance. So, in the event of the insured’s death, their loved ones would have enough to cover funeral expenses, medical bills, and lost income of the policyholder.
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What’s the difference between standard and voluntary life insurance?
There are some key differences between a voluntary life insurance policy vs. a standard life insurance policy. We’ve outlined the major ones in the table below.
Voluntary life insurance
Standard life insurance
Part of employee benefits
Privately purchased by an individual
Rates are lower
Lasts for a predetermined amount of time or your entire life
Minimum issued amount with no medical exam required
More customizable
May not allow for convertibility
Must meet eligibility requirements
Only lasts as long as employment at same company
Can convert from term to whole life insurance
What happens if I don’t choose voluntary life insurance?
Since it’s considered an additional benefit, there’s no penalty for refusing to take out a voluntary life insurance policy with your employer.
Though it’s wise to take advantage of the more affordable rates, taking out an individual life insurance policy could be a better option for you.
