Voluntary life insurance is a protection policy that provides your beneficiary or beneficiaries a cash payout upon your death.
Voluntary life insurance is a great employee benefit for a high percentage of workers. Its coverage is technically lower in cost and no medical exams are required.
What Is Voluntary Life Insurance
Voluntary life insurance is a type of term life insurance, a form of employee benefit option offered by employers. The intention of offering a voluntary life insurance is for employers to ensure that their employees have the opportunity to purchase and further utilize the type of insurance they require.
The employee would be required to pay a monthly premium to the insurance company. In return, the employee’s beneficiaries will then be able to obtain the death benefits, in case the employee passes away whilst being entitled to the policy.
Moreover, a lot of companies offer their employees an opportunity to buy policies for their spouse and children, if they want.
What’s so different about the voluntary life insurance is that, their premiums are in general lower as compared to if the employees were to purchase a similar life insurance policy privately. This is purely because of the employers sponsorship of the life insurance policy.
How Does Voluntary Life Insurance Work
Voluntary life insurance is a form of a guaranteed issue to some extent on the death benefit. Guaranteed issue technically means no medical exam is needed – applicants won’t be rejected upon having any sort of medical condition.
This is a great benefit for employees who could have been unable to purchase life insurance outside of work, due to a medical reason or other reasons.
Life insurance policies differ and each come with their own set of terms and conditions based on what and how the employer approaches the insurance, and also based on the insurance company itself.
The most common question employees tend to have is, whether will the policy still be valid if they were to leave the company? In fact, this differs from one group plan to another, if an issue pops up for the employee, they should be aware of this portion of the coverage, when deciding if they want to enrol in the insurance coverage at all.
However, do know that many employers also offer basic life insurance coverage for their employees at no charge. This insurance amount is one times their salary. For example, if the death benefit amount is more than $50,000, then the amount which will cover the death benefit in excess of the $50,000 is taxable under IRS rule to the employee.
Furthermore, if the employee requires a death benefit amount more than the basic life insurance coverage, they will have the option to choose additional coverage via the open enrollment process, and pay the additional charges for the death benefit.
Benefits of Voluntary Life Insurance
Insurance companies in general offer voluntary life insurance alongside benefits and riders. Basically, a rider is an insurance policy provision that adds benefits or makes amendments to the term of the policy as time goes by.
These are some of the benefits of having a voluntary life insurance:
- Eligible to upgrade insurance plans
- Increasing benefits
- Options to pay premiums through salary
- Ability to continue life insurance even after termination of employment
- Ability to buy plan for spouse and dependents
Whole Life and Term Life Voluntary Insurance
In general, there are two types of voluntary life insurance, whole life and term life.
Voluntary Term Life Insurance
Voluntary term life insurance provides coverage with no accumulation of cash value in the policy as with the whole life insurance, which is a permanent form of insurance. In simple terms, term insurance is a form of pure insurance, this is similar to when it’s bought as voluntary life either through an employer or as part of a group plan.
Term life insurance policies usually offer a death benefit with the premium level. These policies aren’t the same in every insurance company but generally, the term life premium remains stagnant for five, 10, 15 years or perhaps some different periods.
Be mindful that as an employee you may be required to re-enrol yourself in this coverage every year when the employer announces that enrolment period is open for employee benefits
Voluntary Whole Life Insurance
Voluntary whole life insurance isn’t as common as the voluntary term life insurance. However, there are employers who offer permanent insurance coverage like whole or universal life insurance coverage as an option.
Moreover, permanent insurance policies that are offered as a voluntary life option, have higher premiums as compared to term life insurance. These premiums are generally level for the entire policy’s life, and they do indeed build cash value.
Unlike term life insurance, you may not face any hurdles in moving the coverage if you were to change employers. Despite that, you should still research and understand this aspect of your whole life insurance before deciding to go ahead with the permanent insurance coverage.
What About Standard Term Life Insurance
Standard term life insurance policy is both privately from an insurance company. The coverage in the way the premium is paid for a death benefit is quite similar to voluntary term life insurance coverage that is offered by an individual’s employer.
However, there are certain differences that we’ll like to share with you.
When you’re purchasing a term life insurance epolicy, or any other form of life insurance privately, you can expect a medical questionnaire. This might just consist of you filling up a form, or it may also allow the insurance company the permission to refer to your physician and request to be allowed to access your medical records.
The insurance company might allow you to buy the policy you’re in need of, but detrimental medical information will likely affect your premiums and a few other features the policy was offering. Even worse, the company could simply decline to provide insurance coverage for you altogether.
Whereas, as mentioned earlier on, voluntary life insurance doesn’t subject you to a medical exam and is indeed a point of interest for employees with particular medical conditions which enable them to purchase a private life insurance.
Continuation of Insurance Policy
If you’ve decided to purchase a term life insurance policy privately, the terms and condition of the policy will stay in force, for the term you chose of the death benefit with the same level of premium as long as you keep paying the policy’s premiums on time. A change of job will not affect the policy status.
Whereas, when it comes to a change of job for voluntary life insurance, you might not have this privilege to continue the policy. And if you did, there will be an additional cost and the premiums may be higher than before.
The Death Benefit
When you’re looking to purchase a term policy privately outside your group plan, you have the option to choose your preference of the death benefits. This falls within the parameters of what the insurance company may offer and their underwriting standard. However, there is a general wife range of options.
Whereas with term life policies offered within the voluntary life benefits, your options are limited when it comes to the death benefit levels out there. If you want to purchase a wider range of death benefits, the insurance company might allow this, but you will be asked to go through a medical underwriting process.
Should I get voluntary life insurance? Or, should I get standard term life insurance? Voluntary life insurance is without a doubt extremely valuable, and may me best for individuals with medical issues.
Even those who purchased an insurance policy privately, voluntary life insurance will still sound much more inexpensive. Ultimately it all depends on your finances and your personal needs.
We hope, after reading this informative guide, you are ready to purchase the life insurance you need!