What Is Voluntary Life Insurance? (2024)

Working full-time for an employer usually brings you a raft of benefits, one of which might be life insurance. Employers often offer eligible employees a guaranteed issue group life insurance policy as a free employee benefit. Many also offer voluntary life insurance, which allows you to buy supplemental coverage on top of that.

What Is Voluntary Life Insurance?

Voluntary life insurance is a type of life insurance that’s optional and that can usually be purchased in addition to a guaranteed issue group life policy offered by your employer.

Voluntary life insurance is also called supplemental life insurance or optional life insurance.

Membership organizations and labor unions also sometimes offer voluntary life insurance.

How Does Voluntary Life Insurance Work?

Voluntary life insurance works by paying a death benefit to your beneficiaries if you pass away while the policy is in force.

Here is how life insurance works if its voluntary.

Cost. You do pay for voluntary life insurance, but it’s usually much cheaper than the cost of a private, individual life insurance policy because you are paying group rates

Coverage. The coverage amounts for voluntary life insurance are typically multiples of your salary. You may find coverage limits lower than you would in an individual policy.
If the employer has chosen to offer life insurance riders, such as an accelerated death benefit rider or child life insurance rider, those will be available for you to purchase as an add-on.

Eligibility. There are often employer-defined eligibility requirements, like the number of hours worked per week. You can generally buy voluntary life insurance when you’re hired at a new job and during the company’s open enrollment period in which you select work benefits.

Payment. The cost for supplemental coverage is deducted, pre-tax, from your paycheck. Your premiums usually aren’t taxable if the death benefit of your voluntary life insurance is less than $50,000.

Portability. You may be able to keep your voluntary life insurance coverage after you no longer work for your employer. If so, you would be responsible for paying the premium directly to the insurance company, and your rate may change. Whether a life insurance policy you get through work is portable or not depends on the employer.

Taxation. If you die while the policy is active, voluntary life insurance pays your beneficiaries a tax-free death benefit.

Types of Voluntary Life Insurance

Voluntary life insurance policies may be available as either term life or whole life insurance.

Voluntary Term Life Insurance

Term life insurance has fixed rates for a specified level term period, such as 10 years. Once the term ends, you may have the option to renew, but usually at much higher rates. Term life is less expensive than whole life insurance.

Voluntary Permanent Life Insurance

Whole life insurance and universal life coverage remain in place throughout your life. These policy types build cash value that you can tap into.

Voluntary Accidental Death and Dismemberment (AD&D)

covers deaths due to accidental causes, such as a fall. It also provides compensation for specific injuries, such as loss of a limb. Employers often offer voluntary AD&D at low rates. If you need an extra layer of life insurance, you’re better off buying additional, regular group life insurance or your own individual life insurance policy.

Do I Need Voluntary Life Insurance?

Whether you need voluntary life insurance depends on your financial situation, if you have financial dependents and how much other life insurance coverage you have.

The base group life coverage often offered to employees at no cost is usually limited to a specific coverage amount, like one year of salary. An employee earning $70,000 per year may get $70,000 of life insurance coverage for free. While that’s a great start, it may not be enough to cover your beneficiaries’ financial needs once you’re gone.

Adding voluntary life insurance to your base group life coverage can help to fill any coverage gaps.

Advantages of Voluntary Life Insurance

Reasons you might consider buying voluntary life insurance include:

• Premiums are usually deducted from your paycheck using pre-tax dollars.
• Some employers allow employees to add life insurance for a spouse or children to the life insurance policy, at an additional cost.
• It’s easy to sign up during open enrollment time at your employer.

Disadvantages of Voluntary Life Insurance

Voluntary life insurance also have some drawbacks:

• You typically do not have to undergo a life insurance medical exam to qualify for your employer’s basic group life insurance. That means you’ll be eligible for a basic coverage level even if you have health conditions. But if you want extra voluntary life insurance, the insurer might ask for a “Statement of Health” or “Medical Evidence of Insurability” with questions about your overall health. Based on your answers, the insurer could approve the coverage or might then ask for Attending Physician’s Statement or a life insurance medical exam.
• Most voluntary life insurance policies end as soon as you leave the job.
• Voluntary life insurance policies tend to be standardized to appeal to a wide range of employees. You won’t find bells and whistles such as life insurance riders.
• You may need to work a minimum number of hours to be eligible for voluntary life insurance. For example, the employer may offer coverage only to full-time employees.

Is Voluntary Life Insurance Worth It?

A voluntary life insurance policy can make sense for many people—especially those seeking convenient, additional coverage on top of their own individual life insurance policy.

Enrolling is easy. Often you simply need to opt in when choosing your employee benefits.

Voluntary Life Insurance Frequently Asked Questions (FAQs)