What Is Voluntary Life Insurance?

Definition and Examples of Voluntary Life Insurance

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Voluntary life insurance, also known as supplemental life insurance, is an optional life insurance benefit usually offered through the workplace. Like any other life insurance policy, voluntary life insurance provides the covered individual’s beneficiaries with an agreed-upon death benefit.

Voluntary life insurance is generally offered in addition to a basic life insurance policy and at a discounted rate compared to retail insurance policies since the employer is acting as a sponsor for the insurance. Premiums are usually paid through periodic payroll deductions.

Make sure you know what to expect from voluntary life insurance so you can decide if it’s right for you.

What Is Voluntary Life Insurance?

As an employee benefit, supplemental life insurance gives you access to additional life insurance coverage (over and above the basic life insurance your employer provides). This coverage is typically offered at a lower cost than if you were to purchase it on your own. This is because employees are able to take advantage of group rates provided via the employer’s plan.

In addition to the lower cost, some voluntary life insurance is guaranteed issue, which means the insured doesn’t have to provide evidence of insurability (no medical exam or underwriting required) to qualify for a policy up to a certain death benefit amount.

This means employer-sponsored voluntary life insurance can provide necessary coverage to anyone who wouldn’t otherwise qualify for a policy because of a medical condition or dangerous hobby.

If you decline coverage through an employer’s plan when first eligible, you may be later denied coverage if you decide you want to participate in the plan.

How Does Voluntary Life Insurance Work?

Voluntary life insurance may be offered as additional term coverage or as an optional whole life insurance policy, although voluntary term life insurance is most common. Your policy may also be portable once you leave employment (meaning you can take it with you).

Be aware that a whole life or another permanent policy can last throughout your lifetime, while a term life policy is only designed to last until the specified term expires. Whether you opt for a voluntary term or voluntary whole life insurance policy, you can generally expect to pay premiums via payroll deduction.

Some advantages to voluntary life insurance are:

  • Multiple coverage options: While employers may offer a guaranteed issue benefit amount, they may also offer coverage options above that amount (that are not guaranteed issue). If you opt to purchase coverage above the guaranteed issue amount, you can expect your policy application to be subject to some level of medical review or underwriting.
  • Riders: You may be able to attach one or more riders to your policy, which provide added benefits, such as spousal and/or dependent life insurance, and accidental death and dismemberment coverage. Any attached riders typically increase the premium.

Portability

It’s good to understand whether or not your voluntary life insurance is portable, which means you can continue coverage even if your employment ends. Check your policy information to determine portability and keep in mind that policy premiums may go up since you are no longer associated with the employer that afforded you the lower rate.

Many employer-sponsored supplemental life insurance policies are not portable.

What Does Voluntary Life Insurance Cover?

Voluntary life insurance provides the covered individual’s beneficiaries with an agreed-upon death benefit if the covered party passes away while the insurance policy is in effect. Although, supplemental life insurance can increase coverage relative to your employer’s basic life insurance policy, it may not provide the full coverage you need. If you have higher coverage needs, you will need to supplement your voluntary policy with additional coverage purchased independently.

Coverage amounts for spousal and dependent insurance are typically less than what you, as the employee, are eligible for.

Do I Need Voluntary Life Insurance?

Voluntary life insurance can be an excellent option if you don’t otherwise qualify for life insurance (or if it’s very expensive) due to a medical condition or high-risk hobby, for instance. Your employer’s basic plan plus additional voluntary insurance up to the guaranteed issue amount can provide you with essential coverage you might not be able to get elsewhere.

If you need more coverage than what your employer offers, supplement that coverage with an individually purchased policy.

Even if you're satisfied with the level of coverage you have via an employer’s plan, you may want to purchase a private supplemental life insurance policy outside of the workplace, especially if your work-policy isn’t portable, if premiums would increase upon leaving employment, or if you need permanent life insurance coverage.

Key Takeaways

  • Voluntary life insurance, also known as supplemental life insurance, is an optional employee benefit that increases employer-provided basic life insurance coverage.
  • Employees may be able to add accidental death and dismemberment coverage plus coverage for dependents and a spouse.
  • Supplemental life insurance may or may not be portable, which means coverage may end with employment.
  • While voluntary life insurance can offer coverage to those who may not be able to qualify for life insurance on their own, it may not provide the full coverage necessary for everyone.