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What Is Voluntary Life Insurance? Should You Buy It?

Updated Jan. 14, 2022
Kailey Hagen
By: Kailey Hagen

Our Insurance Expert

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Life insurance is a valuable tool workers use to protect their family members in case of their untimely death. While you can buy a life insurance policy independently, sometimes it's also possible to get voluntary life insurance through work. Below, we'll look at how this works and whether it's a smart investment for you.

What is voluntary life insurance?

Voluntary life insurance is a financial safety net that pays a designated beneficiary in the event of the policyholder's death. It's usually offered through employers as an employee benefit. Employees pay a monthly premium amount, which is often deducted from their paychecks, and in exchange, the insurer pays out the benefit amount should the employee die.

In essence, these policies are virtually the same as the individual policies available through insurers. But employee voluntary life insurance policies are often more affordable because they're subsidized by employers.

Types of life insurance offered through your employer

Employers may offer one or more of the following life insurance policies to their employees.

Basic group life insurance

Basic group life insurance provides a small amount of life insurance coverage, often at no charge to the employee. The benefit amount varies by company but can be anywhere from $25,000 to a few times the employee's salary.

This type of coverage is usually guaranteed and doesn't require employees to answer any health questions or complete a medical exam to qualify. All the employee has to do is fill out a form and designate a beneficiary whom they want to receive the payout, should they die.

Voluntary term life insurance

Voluntary term life insurance gives interested employees the option to buy extra life insurance to protect them over a designated term -- for example, 10 or 20 years. If the policyholder dies within this time frame, the beneficiary receives the payout. Otherwise, all the money paid in premiums belongs to the insurer.

Employers are often able to secure more affordable rates for their employees than the employees could get themselves by going to the best term life insurance companies.

But employees are often restricted to a single company and they may not be able to customize the policy in the way they would like. There might be limitations on how much coverage a policyholder can purchase and what kinds of riders are available.

There might also be extra headaches for policyholders who decide to leave their job. Some companies enable policyholders to turn their voluntary employee life insurance policy into an individual policy that can go with them anywhere. But doing this often means losing the favorable rates available on the group plan. For some, it could be cost-prohibitive to keep the policy.

Voluntary AD&D

Voluntary accidental death and dismemberment (AD&D) is a limited life insurance coverage that pays the policyholder's beneficiary if the policyholder is killed or loses a specific body part. These policies have more restrictions on what events qualify for a payout, so they're also more affordable than other types of voluntary life insurance.

While companies may offer both voluntary life and AD&D policies, there's no need to purchase both. A voluntary life insurance policy will cover all the same things as an AD&D policy and then some.

Should you get voluntary life insurance?

It's up to each person to decide whether voluntary life insurance is a good fit for them. Those seeking affordable coverage with fewer hoops to jump through for approval may benefit from signing up for a voluntary life insurance policy through their employer.

But those who plan to leave their jobs soon or those who want greater flexibility in terms of benefit amounts, policy terms, and riders may prefer to look elsewhere. People who aren't sure if a term life policy is right for them may also want to explore some other options. Look at term compared to whole life insurance to decide which makes the most sense for your needs.

How much voluntary life insurance do you need?

It's ultimately up to you to decide how much voluntary life insurance you feel comfortable with. A general rule of thumb is to have at least 10 times your annual salary in life insurance. But employees who have free basic life insurance might be able to get away with purchasing a voluntary life insurance policy with a lower benefit amount.

FAQs

  • It's only possible to borrow from whole or universal life insurance policies. Most voluntary life insurance policies are term life policies, so this is not an option.

  • Voluntary life insurance may give employees the option to keep their policy if they leave the company. However, the employee may have to pay more to keep the coverage going forward.

  • Voluntary AD&D could be worth it for those who want some measure of life insurance coverage but cannot afford a voluntary term life insurance policy.

  • There's no need to purchase life insurance and AD&D coverage because a voluntary life insurance policy covers the same causes of death as an AD&D policy as well as many others.

  • Basic life insurance is often free through employers, so there's no reason for workers to turn this down if they're offered it. But they don't have to purchase additional voluntary life insurance coverage if they don't want it.

Our Insurance Expert