Voluntary employee life insurance offered by employers can be a convenient and affordable way to supplement your existing coverage. But is this type of group life insurance really worth it for you?
This comprehensive guide examines the pros and cons of voluntary life insurance to help you decide if it should be part of your insurance portfolio.
What is Voluntary Employee Life Insurance?
Voluntary employee life insurance is an optional group term life policy that employers offer to workers as part of their benefits package. It provides additional coverage beyond the basic life insurance that companies often provide for free.
With voluntary life insurance, you pay the premiums through automatic payroll deductions. The death benefit is paid to your chosen beneficiaries if you pass away during employment.
Here are some key features of voluntary employee life policies:
Optional – You can choose to enroll or decline coverage
Supplemental – Boosts level of basic employer-paid life insurance
Guaranteed issue – No medical exam required for coverage
Portable – Can take policy if you leave the employer
Group rates – Cheaper than individual life insurance
So in essence, voluntary life insurance allows you to buy extra coverage at discounted group rates to protect your loved ones financially.
Pros of Voluntary Employee Life Insurance
Here are some of the advantages of voluntary life policies that make it worth considering:
1. Easy enrollment
Signing up for voluntary insurance is straightforward since it’s offered through your employer. You can enroll when first hired or during open enrollment periods without undergoing medical tests.
Premiums are automatically deducted from your paycheck by your employer. You don’t have to worry about making separate payments.
3. Lower cost
Group policy rates are cheaper compared to buying a private individual life insurance policy. Premiums are based on employee demographics.
4. Customizable coverage
You can select a coverage amount that meets your needs – often 1x to 5x your annual salary. Spouse and child policies may also be available.
5. Continue coverage
Voluntary life insurance is portable in most cases. You can take it with you even if you leave the employer.
6. Financial protection
Extra coverage provides added financial security for dependents against loss of income if the breadwinner dies prematurely.
7. Tax benefits
Premiums are deducted pre-tax from paychecks. Death benefits are income tax-free for beneficiaries.
Cons of Voluntary Employee Life Insurance
Voluntary life insurance also comes with some potential limitations:
1. Coverage limits
Policy coverage amounts tend to be lower than what you may be able to get with an individual life insurance policy purchased privately.
2. Limited customization
The policies offer standard coverage with few options for customization or add-ons.
3. Rate hikes
Premiums can increase with age, unlike individual policies that lock-in rates for the coverage term.
4. Health questions
Insurers may ask health questions before approving higher coverage amounts, unlike guaranteed basic policies.
5. Job dependency
You could lose coverage if you leave your employer, unless the policy is portable.
6. Limited underwriting
Minimal financial underwriting means voluntary life may cost more than a policy that takes your health into account.
7. Not renewable
Voluntary life insurance terms are mostly one year. You cannot renew a policy if employment ends.
So while voluntary policies offer convenience, they do come with some limitations compared to private life insurance bought individually.
Who Should Consider Voluntary Life Insurance?
Voluntary employee life insurance can be a smart choice for:
- Employees with limited individual life coverage
- Single income households with dependents
- Young healthy individuals who can lock in lower rates
- Workers unable to qualify for private life insurance
- People seeking an extra layer of financial protection
- Employees needing coverage but lacking time to shop for life insurance
For most people, voluntary insurance works best as a supplement to enhance overall coverage. It can help bridge the gap if your individual life policy and basic employer-paid coverage falls short of your family’s needs.
Who Might Not Need Voluntary Life Insurance?
Here are some cases where voluntary life may not be necessary:
- You already have sufficient coverage from individual policies.
- Your financial obligations are limited.
- You have no dependents relying on your income.
- You frequently change employers, risking lapses in coverage.
- You have health issues that make individual policies more cost-effective.
- You want permanent life insurance to build cash value.
- You need customized coverage with add-on options.
For people in these situations, private life insurance tailored to specific needs may be preferable over voluntary employer life insurance.
How Much Voluntary Coverage Do You Need?
The amount of voluntary life insurance you should get depends on:
- Size of existing life coverage
- Level of financial obligations
- Number of dependents
- Spouse’s income
- Debt and assets
- Final expenses
A general rule of thumb is buying voluntary life insurance worth 5-10 times your gross annual income. But assess your unique situation to decide the right amount.
What Does Voluntary Life Insurance Cost?
The cost of voluntary life insurance depends on:
- Age when you enroll
- Coverage amount
- Term length
- Employer’s group policy rates
- Insurer pricing models
Term voluntary employee life premiums are generally cheaper than buying private insurance. Here are some sample monthly rates for $100,000 coverage:
Premiums deducted from paychecks are tax-free if policy face value is under $50,000.
Is Voluntary Insurance Guaranteed?
Voluntary employee life insurance is generally guaranteed as long as you are actively employed. Coverage amounts under $150,000 usually don’t require evidence of insurability.
Higher coverage may necessitate health questions or exams. Pre-existing conditions may be excluded for 12 months.
- Voluntary life insurance allows employees to affordably supplement workplace coverage.
- It provides group term life insurance up to policy limits at discounted rates.
- Enrollment is easy but premiums can increase annually after a certain age.
- It’s an optional add-on so you can decline if you have sufficient existing coverage.
- For most people, voluntary insurance works best when combined with individual life policies.
Voluntary life strikes a useful balance between cost, convenience and coverage. Evaluate your specific insurance gap and financial needs to decide if it’s a worthwhile employee benefit for you.
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