Voluntary Group Life Insurance: Whole Life Or Term?

Voluntary life insurance is an optional benefit provided by employers that offers financial protection to an employee's beneficiaries upon their death. It is usually purchased in addition to a guaranteed issue group life policy offered by the employer. This type of insurance is also known as supplemental life insurance or optional life insurance. It is often cheaper than an individual life insurance policy because it is purchased at a group rate.

There are two types of voluntary life insurance: voluntary whole life and voluntary term life. Voluntary whole life insurance covers the entire life of the insured and also offers protection for the entire life of a spouse or dependent. Voluntary term life insurance, on the other hand, offers protection for a limited period, such as 10, 20, or 30 years.

Voluntary whole life insurance

Some employers offer riders or add-ons, such as the ability to accelerate benefits if the insured is terminally ill, or supplemental life insurance for partners, children, and other dependents.

Voluntary term life insurance

The coverage amounts for voluntary term life insurance are typically multiples of the insured person's salary. If the employer has chosen to offer life insurance riders, such as an accelerated death benefit rider or child life insurance rider, those can be purchased as add-ons.

Voluntary life insurance cost

Voluntary life insurance is an optional benefit provided by employers that offers a death benefit to a beneficiary upon the death of an insured employee. It is usually less expensive than life insurance policies purchased in the retail market. The cost of voluntary life insurance is determined by the type of policy, the employer's group rate, and the employee's age at the time of purchase.

The two basic types of voluntary life insurance are voluntary whole life and voluntary term life. Voluntary whole life insurance protects the insured for their entire life and also provides protection for the entire life of a spouse or dependent, although the amount of coverage is typically less for spouses and dependents. Voluntary whole life insurance allows cash value to accumulate according to underlying investments, with some policies applying a fixed rate of interest and others allowing for variable investing in equity funds.

Voluntary term life insurance offers protection for a limited period, such as 10, 20, or 30 years. It is generally less expensive than whole life insurance because it does not build cash value or allow for variable investing. Premiums are level during the policy term but can increase upon renewal.

The cost of voluntary life insurance is typically deducted from the employee's paycheck on a pre-tax basis. The premiums are usually not taxable if the death benefit is less than $50,000. The coverage amounts are often multiples of the employee's salary, with some employers offering coverage in increments of $10,000. For example, an employee earning $70,000 per year may receive $70,000 of free life insurance coverage from their employer but can purchase additional coverage through voluntary life insurance.

In some cases, employers may offer voluntary life insurance to their employees at no cost. However, if there is a premium, it is usually automatically deducted from the employee's paycheck. The specific cost of voluntary life insurance will depend on the employer's chosen group rate and the employee's age, with older employees generally paying higher premiums.

Pros and cons of voluntary life insurance

Voluntary life insurance is a type of life insurance that is optional and can usually be purchased in addition to a guaranteed issue group life policy offered by an employer. It is also known as supplemental or optional life insurance. Here are some pros and cons of voluntary life insurance:

Pros:

• Affordability: Group rates often make voluntary life insurance more budget-friendly than individual policies.
• Convenience: Premiums are typically deducted directly from the employee's paycheck.
• Ease of Access: It usually doesn't require a medical exam, making it more accessible than individual policies that often do.
• Additional Coverage: It offers more coverage than basic employer-provided life insurance.

Cons:

• Limited Customization: Voluntary life insurance policies may not be as flexible as individual plans, with fewer options for add-ons or customisation.
• Employment Dependency: Coverage usually ceases if you leave your job, unlike individual policies which are not dependent on your employment.
• Limited Enrollment Periods: It’s usually only available during specific times of the year, such as during the company's annual open enrollment period.
• May Be Insufficient: The coverage provided by voluntary life insurance might not meet all your financial needs, especially if you have significant financial obligations or dependents.

Eligibility and payment

Voluntary life insurance is an optional benefit provided by employers, which offers a death benefit to a beneficiary upon the death of an insured employee. It is a type of group life insurance that is typically provided through work.

Voluntary life insurance is available to eligible employees, which may include requirements such as working a minimum number of hours per week. Employees can generally buy voluntary life insurance when they start a new job, during the company's open enrollment period, or after a qualifying life event such as the birth of a child.

The cost of voluntary life insurance is typically deducted pre-tax from the employee's paycheck. Premiums are often less expensive than individual life insurance policies and are usually not taxable if the death benefit is below $50,000.

Voluntary life insurance policies may be available as either term life or whole life insurance. Term life insurance offers coverage for a fixed period, such as 10, 20, or 30 years, while whole life insurance provides coverage for the entire life of the insured.

Voluntary life insurance plans may also include additional benefits and riders, such as the option to purchase coverage for spouses, domestic partners, or dependents, as well as the ability to accelerate benefits if the insured is terminally ill.

It is important to note that voluntary life insurance policies may not be portable, meaning employees may lose their coverage if they change employers or no longer meet eligibility requirements.

Frequently asked questions