What’s voluntary life insurance?
Updated 2:20 p.m. UTC June 23, 2023
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Key points
- Voluntary life insurance is optional life insurance you can purchase through your employer at a group rate.
- You can usually choose between voluntary term life and voluntary permanent life insurance.
- Voluntary life insurance may not follow you if you leave your employer.
Many employers offer life insurance as part of an employee benefit package, but the amount of coverage included typically isn’t enough to cover the financial needs of your dependents — like a spouse, children or other family members.
In some cases, you can supplement your employer-provided coverage by purchasing a voluntary life insurance policy. Doing so can provide a simple path to more comprehensive coverage, but is it the best option?
We’ll help you understand your options, when you may want to take advantage of voluntary life insurance and when another life insurance product might be better suited to your needs.
The basics of voluntary life insurance
Voluntary life insurance is optional life insurance you can purchase through your employer at a group rate. You’ll pay the premium yourself, but it will likely be deducted from your paycheck and more affordable than purchasing coverage on your own.
When purchasing a voluntary life insurance policy, you typically can choose from a term or permanent coverage. You may also have the opportunity to add voluntary accidental death and dismemberment (AD&D) coverage.
Term life insurance
Term life insurance provides coverage at a locked in rate for a set number of years, often between 10 and 30. Once the policy term expires, coverage typically ends and your beneficiaries will no longer receive a death benefit if you die. You may be able to renew the policy, but it’s often at a higher rate, so it’s best to pick the right term length from the start.
Term life is the best choice if you want coverage for a set period of time, such as until you pay off your mortgage or your children finish school. It’s more affordable than whole life insurance, in part because it doesn’t have a cash value component.
Permanent life insurance
Permanent life insurance, which includes whole life and universal life insurance, lasts for the duration of your life and typically has a cash value component. The cash value grows over time, and you can withdraw from or borrow against it while you’re alive, though it can take several years for enough value to accumulate.
Since permanent life insurance includes cash value and lasts your lifetime, it’s more expensive than term coverage.
Voluntary accidental death and dismemberment (AD&D) coverage
Voluntary AD&D isn’t a rider per se, but rather a different type of insurance coverage that can complement your voluntary life insurance. AD&D provides a lump-sum payout if you’re in an unexpected accident that results in your death or loss of limbs, senses or mobility.
Who should consider voluntary life insurance?
If you feel a bit overwhelmed by the prospect of shopping around for a life insurance policy and don’t need a ton of coverage at this point in your life, voluntary life insurance could be a good place to start.
“By making voluntary life insurance easy to enroll in when you sign up for benefits, it potentially encourages people to get life insurance that otherwise wouldn’t,” says Ben Gurwitz, a Certified Financial Planner at Financial Life Advisors. There are lots of people who should have insurance but don’t because they don’t know where to shop, he adds.
Even though voluntary life insurance may be easy to buy through your employer, you should still take the time to ensure this coverage is worth your while.
There are drawbacks to purchasing a voluntary life insurance policy, primarily that it’s tied to your employer. Some policies are portable, but often your coverage will end when you sever ties.
That may not seem like a big deal, but life insurance premiums increase with age. So if you purchase voluntary life through your employer at age 35 and leave at age 45, you’ll likely pay more for coverage when you buy a new policy. It may not be a problem if you’re just supplementing an existing policy, but if it’s your primary source of coverage, it may be better to purchase a policy on your own.
Another consideration is policy customization. Most voluntary life insurance policies are packaged to appeal to an organization and offer limited opportunities for riders, or policy add-ons. If you want the opportunity to add riders, consider shopping around.
Ethos
How much does voluntary life insurance cost?
Many employers offer a certain amount of coverage at no cost to the employee — often a flat dollar amount or a multiple of the employee’s salary. But if you want to add additional coverage, you’ll have to pay for it. This payment typically takes place via payroll deduction.
Companies with 100 employees or more typically have access to competitive rates. However, healthy individuals might find a lower-priced option on the open market.
Can you take voluntary life insurance coverage with you when switching jobs?
While some voluntary life insurance policies are portable, meaning you can take them with you when you leave a job, many are not.
When you leave a company, you don’t always get to take, or “port,” your voluntary term life insurance with you, at least in its current state.
“One of the downsides of voluntary life insurance through an employer is oftentimes you lose that coverage or have to convert it to a really expensive whole life policy to keep it when you leave,” says Gurwitz.
If you find yourself in this situation — leaving your job and having to decide what to do with your voluntary life insurance coverage — you’re probably best off leaving your policy behind to buy a new one, either on your own or through your next employer.
“The conversion to whole life would likely only be a good idea if there was an issue of insurability. The cost of this is generally higher than even purchasing a new whole life policy on someone who is healthy,” Gurwitz says. “Life insurance companies know that most people will not convert a policy but people who do convert to whole likely can’t get it elsewhere.”
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