Life insurance is often one of the perks you receive from a full-time job with an employer. As a free employee benefit, employers frequently provide qualified workers with guaranteed-issue group life insurance. With voluntary life, you can purchase additional protection on top of it. You can choose to add more coverage to a voluntary life insurance policy and keep it for as long as you work for the business. Your money is withheld to cover the cost.
Some workplaces provide it as an optional benefit. It is a kind of group policy. Insurers provide it as an employee benefit at a group rate, which might be less expensive than purchasing coverage individually. However, this plan is not necessary for everyone. It can be practical for people who only need a limited amount of coverage, are in bad health, or have already been declined by another insurer because of bad health conditions.
There are many choices available when it comes to protecting your loved ones’ financial future. Voluntary life insurance is one of these options, providing people with a layer of protection over and above what is covered by plans.
Let’s dive into the details of voluntary life insurance and understand how it works.
Understanding Voluntary Life Insurance
When it comes to ensuring the financial security of your loved ones, there are numerous options accessible. One of these possibilities is voluntary life insurance, which offers customers an additional layer of protection on top of what is provided by conventional plans. Some employers may provide it. It is a type of optional group plan. The premiums are typically a little lower than those of an individual term policy and may even be paid for by your company because employers sponsor voluntary policies.
For an additional cost, policyholders can frequently expand coverage limits or include coverage for a spouse or child. Voluntary life insurance, like other types of policies, pays a death benefit to the employee’s designated beneficiaries in the event of the employee’s passing. You are still allowed to select your beneficiary even if your company covers some or all of the cost.
In most cases, you can purchase it when you begin new employment. Otherwise, your purchasing opportunity will be immediately following your employment or during your employer’s yearly open enrollment period.
Types of Voluntary Life Insurance
There are two basic types of term and whole life. Most employers usually provide term life insurance in these scenarios.
Voluntary Term Life Insurance
A policy known as voluntary term life insurance protects a set time frame, such as five, ten, or twenty years. It does not have the capability of creating cash value or variable investing. Because of this, premiums are less expensive than those for a full life. While the policy’s term is level, the premiums may climb when it is renewed.
Voluntary Whole Life Insurance
Voluntary whole life covers the insured person’s full life. If a spouse or dependent elects whole-life coverage, their entire life is also covered by the policy. The amount available to spouses and dependents is typically less than the amount available to employees. Similar to permanent whole policies, cash value grows based on the underlying investments. Other policies permit variable investing in equity funds, while some merely apply a fixed rate of interest to the cash value.
What is the difference between Basic Life and Voluntary Life Insurance?
The primary distinction between voluntary and basic life insurance is that basic plans are provided by an employer as part of the normal benefits package, whereas voluntary life insurance is optional coverage that employees can acquire for a fee.
When the insured dies, both types of plans pay a death benefit to the specified beneficiary, but voluntary life insurance provides more freedom in terms of coverage amounts and customizing possibilities.
While employer-provided plans can provide some coverage, it frequently has limitations. Voluntary life insurance allows you to augment your employer’s coverage, ensuring that your loved ones have adequate financial security. Furthermore, voluntary life insurance is portable, allowing you to have coverage even if you move jobs or leave the organization that provides such plans.
Benefits of Voluntary Life Insurance
The benefit of voluntary employee life insurance is that it is inexpensive and does not need a medical checkup. However, it is not the ideal option for everyone. Consider its benefits and drawbacks to determine if it is right for you.
- Great for covering Smaller Financial Obligations: Voluntary life insurance is frequently appropriate as a supplement or for persons who don’t have a substantial need for life insurance because coverage limits are minimal.
- Flexibility and Customization: Unlike traditional employer-provided plans, it allows you to tailor the coverage amount to your specific needs. This flexibility ensures that you have the right amount of coverage to protect your loved ones adequately.
- Portability: In most cases, voluntary life insurance policies are portable, meaning you can retain the coverage even if you change jobs or leave the association. This portability provides peace of mind, knowing that your coverage will remain intact regardless of your employment status.
- Tax Advantages: Depending on your country and tax regulations, the premiums paid for voluntary life insurance may be tax-deductible, further enhancing the affordability of the coverage.
- No medical exam required: There is little underwriting necessary for it. This enables persons with health issues or habits that would normally preclude them from obtaining related plans to do so. This means you do not need medical documentation or to answer health questions to get approved for this plan. The acceptance is automatic. However, do note that if you apply for (or want to raise) your coverage above the guaranteed-issue level, you must produce medical paperwork or evidence of good health.
- Affordable: The premiums are reduced by 10 to 20%, making these life insurance plans affordable to consumers who might not have purchased them otherwise.
Who Can Benefit from Voluntary Life Insurance?
Workplace life insurance normally has eligibility conditions. You may, for example, be expected to work at least 20 hours per week. You are not required to sign up for basic employee life, but because volunteer life is optional, you must sign up for it, and there may be time constraints. If you’re a new employee, you’ll usually have a few weeks to enroll before having to wait until the next annual benefits open enrollment period to sign up or increase your policy amount.
Voluntary life insurance can benefit various individuals, including:
- Employees: Employees who want to enhance their life insurance coverage beyond what their employer provides.
- Association Members: Members of associations or organizations that offer voluntary life insurance as a benefit.
Why should you buy Voluntary Life Insurance?
Voluntary life insurance is typically an excellent value that is worth investigating. Many people may benefit from such a policy, particularly those wanting easy, supplementary coverage on top of an employer-provided base plan. Its cost is determined by your unique circumstances and financial objectives. If you have dependents on your income and wish to give them additional financial stability, voluntary life insurance may be a worthwhile investment. However, before making a decision, you must consider your budget, coverage needs, and policy conditions.
Following are some reasons why you can consider buying voluntary life insurance.
- If a basic plan is insufficient: If the basic life insurance provided by your employer is insufficient to pay your final expenses, adding this plan can assist your beneficiary in covering bills if you die while the coverage is in effect.
- If you live alone: Single people without children frequently discover that they do not require much coverage in their plans. Voluntary life insurance with modest coverage may be sufficient to meet funeral expenses and other minor financial responsibilities.
- If you live on a low budget: Those on a tight budget may discover that voluntary life insurance is less expensive than other policies because there is no medical exam and your health isn’t as important, especially if you’re in bad condition and would otherwise be ineligible for individual coverage.
How Much Coverage Do You Need?
The amount of coverage you need depends on various factors, including your income, outstanding debts, mortgage or rent payments, education expenses, and future financial goals. If you have a family, you want enough to replace the income you would have supplied as well as pay the additional costs they would encounter while you are gone – especially if your children are still at home. To determine how much coverage you need, there are a few guidelines you can follow:
- 10x your income: This is one of the basic guidelines to follow in such cases. You will be able to provide a decent financial cushion to your family. However, this guideline is oversimplified and does not consider all needs.
- 10x your income + College expenses: This guideline is especially useful for those who have children. This can help cover educational expenses for your children and ensure that they complete their education.
- DIME Formula: DIME stands for Debt, Income, Mortgage, and Education. It factors all your expenses plus your income for years for which your family needs protection. It is a comprehensive way to list out various expenses so you can provide complete financial protection to your family in case you pass away.
How to apply for Voluntary Life Insurance?
You must first be employed by a company that provides this benefit or a member of an allied organization, such as a credit union, to receive voluntary life insurance. This sort of policy is not available to purchase separately in the private market. Following are the steps to apply:
If your workplace provides voluntary life insurance, you normally enroll in it as soon as you are recruited or shortly thereafter, such as after 90 days. In some circumstances, you will renew this benefit during your company’s open enrollment period for benefits. You may be able to acquire additional coverage for yourself or a family member, but you will usually be required to fill out additional paperwork, agree to additional fees, and may be subject to a medical test or questionnaire.
During your enrollment time, you may be given the opportunity of adding additional life insurance riders to your policy, such as long-term care or accidental death.
Because each company negotiates its group policy, the quantity of coverage available will vary from one employer to the next. Your options will sometimes be in rounded dollar increments, such as $10,000, $20,000, and so on; other times, it may be a “multiple of salary” – 1x your pay, 2x your salary, and so on. Some plans also allow you to acquire coverage (usually at a cheaper cost) for a spouse or even children as long as you get coverage for yourself.
Portability means you can keep your current insurance coverage if you quit the employer. One advantage is that it is one of the few benefits that can be continued even if your health deteriorates to the point where it would be difficult to qualify for another policy. However, while many voluntary plans are portable, some are not: to avoid unpleasant surprises, you should check to see if your company’s plan is portable before signing up.
Voluntary life insurance is a vital component of a comprehensive financial plan, offering individuals the opportunity to enhance their existing coverage and secure their loved one’s financial future. With its customizable options, supplemental protection, portability, and tax benefits, voluntary life insurance provides peace of mind during life’s uncertainties. As a standalone plan, it is especially beneficial for those who suffer from poor health conditions which makes them ineligible for other insurance programs. On the hand, it is nice to have an insurance plan for those who are already enrolled in basic plans.
Frequently Asked Questions
It depends on the type of policy. If it is a term policy then it does not accumulate cash value over time. The whole policy does accumulate cash value over time.
According to Forbes, multiplying your salary by 10 is a standard rule of thumb for estimating how much life insurance you need. Some experts suggest dividing it by 5 or 7.
Employees can get up to $50,000 in tax-free voluntary life insurance coverage. The IRS considers any premium for coverage beyond $50,000 to be taxable income.