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What is voluntary life insurance?

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It’s not necessarily fun to think about what happens after you die, but by planning ahead now, you can save your loved ones a great deal of added grief after you’re gone. One way to ensure your family members are financially stable after you are no longer with them is by obtaining a life insurance policy. However, such policies can be extremely expensive on their own, making it even more difficult for families to plan ahead.

This is where voluntary life insurance can step in.

By signing up for voluntary life insurance through your employer, you’ll enjoy all the death benefits of a standard life insurance policy without the associated price tag. Because these policies are sponsored by your employer, voluntary life insurance is a more cost-effective option to help secure your family’s financial wellbeing after you die.

What is voluntary life insurance?

Voluntary life insurance is a type of life insurance policy that is offered through the workplace. Typically, employers offer voluntary life insurance as an optional benefit; employees pay a monthly premium in exchange for coverage. This coverage ensures that if you die, your designated beneficiaries will receive a cash death benefit. Because your employer sponsors the insurance offerings, the result is often a much more affordable premium compared to standalone policies you may purchase outside the workplace.

These life insurance policies are usually offered in multiples of the employee’s salary, but can also be available in set amounts. Voluntary life insurance is typically offered to new employees either immediately after hire or after the first 60 – 90 days of continuous employment (depending on the company policy).

What are the types of voluntary life insurance?

There are two primary types of voluntary life insurance: voluntary whole life insurance and voluntary term life insurance. Coverages differ depending on which policy you select. The following outlines the main differences between each and the types of coverage one can expect by selecting one over the other:

Voluntary whole life insurance

Often seen as the better investment of the two options, voluntary whole life insurance is a policy that remains in effect for the policyholder’s entire life. Some employers may allow you to select a whole life insurance policy for a spouse or dependent as well, which will protect them for the duration of their lives. 

As long as premiums are paid on-time, the policyholder will have a guaranteed death benefit paid out to designated beneficiaries after death. Voluntary whole life insurance policies function like permanent whole life policies in that the cash value accumulates according to your underlying investments.

Voluntary term life insurance

Alternatively, some employers may offer a voluntary term life insurance policy, which provides guaranteed coverage only for a set amount of time. Typically, policies are offered in terms of five, 10, or 20 years, and the policies do not build cash value or allow for variable investing. 

Premiums are less expensive for these policies because insurers anticipate that the policyholder will outlive the terms of their policy (in other words, they won’t have to pay out the death benefit). While not as robust as voluntary whole life insurance, these policies are often a great option for parents looking to ensure financial stability for their children’s future.

Who needs voluntary life insurance?

Nearly everyone can benefit from securing life insurance of some form, but whether or not you’re a good fit for voluntary life insurance largely depends on your financial needs and ability to qualify for retail market rates based on your lifestyle. 

For example, someone with less-than-perfect health and a risky family medical history may not qualify for good rates on life insurance products through the marketplace. But by working for an employer that offers such benefits, they could be able to qualify for the coverage they need to protect their family’s financial future at an affordable rate.

By contrast, those with optimal health and a low-risk lifestyle may benefit more from finding life insurance on their own. This is because voluntary life insurance plan rates are determined based on a group, which is why employers are able to offer them to employees. Due to the group rate, healthier individuals can potentially pay more than they would by purchasing a policy of similar value through the marketplace.

If you’re a parent, however, voluntary life insurance can be a cost-effective option for protecting your children’s financial future. This is because voluntary life insurance plans are typically offered at a flat rate regardless of how many children you have. Be sure to review the group rate table outlined in your employee benefits handbook to make the most informed decision for you and your family.

How to get voluntary life insurance

Obtaining a voluntary life insurance policy is fairly simple; the biggest hurdle is finding an employer that offers such benefits through the workplace. Once you’ve landed a job at a reputable company, getting a voluntary life insurance policy is often only a matter of time and adhering to the employee benefits enrollment period outlined by your employer. Review the steps below to find out how to get voluntary life insurance for yourself and your family:

  • Get hired: The first step in finding a voluntary life insurance plan is gaining employment with a company that offers these benefits. One way to find out if your future employer offers these benefits is by asking them outright during the interviewing process, which can indicate to employers that you’re serious about your candidacy and about the welfare of your family.
  • Review options: Once hired, you’ll likely be given an employee benefits handbook. Depending on your employer’s policy, you’ll either be eligible for enrollment after your first day or after a set timeframe (usually between 60 and 90 days). Refer to your employee handbook to identify available plans, rates, and riders. If you have any questions, set up a meeting with your HR manager to get them answered before enrolling in a plan that doesn’t suit your needs.
  • Sign up: You’ll be given a deadline by which you must sign up for any benefits through the company. Be sure that you submit your request for the benefits you want before this deadline hits. If you miss the deadline, you’ll need to wait until the open enrollment period of the following year to enroll. Many times, companies allow employees to elect their benefits through an online portal. If you have difficulty accessing the portal and making your elections, reach out to your HR manager immediately to avoid missing your deadline or selecting the wrong coverage option.

After you’ve successfully enrolled in your voluntary life insurance plan, you’ll need to watch out for emails from your HR team that indicate it’s time for open enrollment. The open enrollment period occurs annually and is a time for employees to either re-enroll in the benefits they’ve elected or opt for something new. You may have additional options to choose from depending on whether or not your employer upgraded their benefits plans, so be sure to read any new materials that are sent your way so you can select the best coverage.

The takeaway

  • Voluntary life insurance is an employer-sponsored policy that’s offered to employees through a benefits package.
  • Rates for voluntary life insurance are determined at the group level, and therefore may end up costing healthier individuals more than a marketplace rate.
  • People with less-than-perfect health or multiple dependents often benefit the most from electing voluntary life insurance through their employer.
  • Signing up for voluntary life insurance is typically easy, and employees can always seek out their HR manager for help when making their initial elections.

If you work for a company that offers voluntary life insurance benefits, it may benefit you to sign up for them due to their lower rates and breadth of coverage. Especially if you have a riskier lifestyle or health issues, voluntary life insurance can provide a cost-effective way to provide financial support to your loved ones in the event of your death.

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