Is Voluntary Employee Life Insurance Worth It? A Complete Guide

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.

2. Convenience

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:

Age Voluntary Rate Individual Rate
25 $5 $7
35 $8 $12
45 $15 $30
55 $35 $70

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.

Key Takeaways

  • 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.

What is voluntary life insurance?


What are the benefits of voluntary life insurance?

If it is a voluntary whole life insurance plan, the beneficiary will be guaranteed the death benefit whenever they pass. If the employer allows it, employees may be able to scale the amount of the death benefit up. Another advantage of voluntary life insurance, both and whole and term, is that it’s usually portable.

Is voluntary insurance worth it?

If you get voluntary life insurance at all, only go for term life. Since this kind of benefit is sponsored by your employer, the premiums are typically cheaper than you’d find if you’re shopping on your own. But it’ll also only provide about a year or two of salary coverage. And that’s way less than you need.

What happens to voluntary life insurance when you leave a job?

Generally, if you have no other options, your life insurance coverage will end when you leave your job.

Is Voluntary life and AD&D worth it?

Due to the low premiums, VAD&D is sometimes attractive to younger people who may not have the income to support a full life insurance policy. However, VAD&D only pays out in very specific circumstances. While it may be worth getting if your employer provides it, VAD&D is no substitute for a full life insurance policy.

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