What Is Voluntary Life Insurance?

Voluntary life insurance is a type of insurance offered as part of a group insurance policy that typically covers employees in the event of their death. It is an additional benefit offered by employers that they typically don’t pay into, but offer via a third-party provider. If an employer offers life insurance then this coverage would be on top of that separate policy. Deciding to opt into voluntary life insurance is completely up to the employee and the right choice will depend on their situation. If you want personalized advice, consider working with a financial advisor to determine your life insurance needs.

Some employers offer voluntary life insurance. It’s a type of group life insurance policy that’s an optional perk for some employees. As an employee, you’ll pay a monthly premium out of your paycheck. If you pass away while the policy is effective, then your beneficiaries will receive the agreed-upon death benefit. Depending on your company, you may also be able to purchase voluntary life insurance for your spouse and children.

Generally, you can purchase voluntary life insurance when you start a new job at a company that offers this perk. In some cases, you’ll have to wait until the annual open enrollment period to tap into this benefit or wait until after an initial period of time. Whenever you become eligible for other benefits offered by your employer is typically when you would be eligible for this benefit.

Types of Voluntary Life Insurance

Voluntary life insurance comes in two forms.

1. Voluntary whole life insurance: Whole life insurance is designed for a person’s entire life. There’s a cash value that accumulates through investments or a fixed interest rate. Whole life insurance is a more complex vehicle, but it does offer financial security for your family.

2. Voluntary term life insurance: Term life insurance is designed to offer coverage for a set period of time. Many families choose to take out term life insurance for coverage during one period of their life.

For example, you might decide to take out a term life insurance policy while you still have children at home. These policies offer a more affordable life insurance option for a set period of time.

The best choice between whole and term life insurance varies based on your unique situation. Although many choose term life insurance for the affordable premiums and peace of mind, a whole life insurance policy might be better suited for some families.

Pros and Cons of Voluntary Life Insurance

If you want life insurance, voluntary life insurance isn’t the only option. Before jumping into the group plan, there are some benefits and drawbacks to consider. The importance of each will depend on your unique situation. Let’s start with a look at the advantages of voluntary life insurance, followed by the disadvantages.

Pros

Better prices: With an employer involved, you can usually lock in a better price with voluntary life insurance. Whether your employer gets a discount for the group rate or pays a portion of the premium, you might be able to get a better deal than you would be shopping on your own.
Limited medical restrictions: Many group life insurance policies typically don’t require a medical exam for a basic amount of coverage. If you’ve had trouble qualifying for an individual life insurance policy, locking in a voluntary life insurance policy could be the right fit.
Potential for entirely covered premiums: In some cases, the employer covers the entire premium up to a certain amount of coverage. Although this isn’t always an option, it could be a big boost to your family’s financial security.

Cons

Low coverage caps: In many cases, there is a low coverage cap on voluntary life insurance policies unless you are willing to commit to a medical exam.
Not always portable: If you leave your employer, that could be the end of your life insurance coverage. Although some insurance companies allow you to convert this type of coverage into a permanent solution, not all will. It’s important to look into the portability of a voluntary life insurance policy before committing.

Voluntary life insurance often comes with a lower premium. But you’ll likely face policy coverage limits. If you have questions about the policy offered by your employer, reach out to the human resources department.

Bottom Line

Voluntary life insurance is part of a group insurance policy offered by employers that covers workers in case of their death. It is offered by a third-party provider. If your employer offers voluntary life insurance, you’ll need to make sure that the plan offered aligns with your financial plans. Consider working with a financial advisor to determine whether or not the voluntary life insurance policy available through your employer is the right choice for your situation.

Tips

Determining the right type and amount of life insurance can be challenging without the objective perspective of a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Not sure how much life insurance you need? Take advantage of our free life insurance calculator.