What is Voluntary Life Insurance? Benefits, Costs & Enrollment Guide 

Have you ever thought about what you would do if the unexpected occurs – at work or in life? Many employers offer basic life insurance, but it’s often not enough to fully protect your family’s financial future. That’s where voluntary life insurance comes in! Voluntary life insurance is an optional type of coverage that employees can choose to purchase, giving them control over how much protection best fits their needs

Voluntary life insurance helps employees secure additional protection for themselves, their spouse, or their dependents. In the event of an untimely death, the additional benefit ensures that loved ones are provided for. Voluntary life insurance is an option that can bridge the gap left by standard employer life insurance. This type of policy offers coverage options, premium deductions from payroll, and the possibility of portability for your policy if you switch jobs.  

In this guide, we will lay out the basics of voluntary life insurance: the benefits and the premium calculations, the steps for enrollment, and the disadvantages of both, along with valuable tips from a skilled professional regarding your choice on whether you and your family will benefit from voluntary life insurance or not. You will have clarity and peace of mind by the time you are done reading the guide! 

What Is Voluntary Life Insurance?

Voluntary life insurance allows employees to purchase additional coverage through their employer, supplementing the basic life insurance already provided.

Basic life insurance usually covers only one or two times an employee’s salary, and employees often cannot take it with them if they leave the job. Voluntary life insurance lets employees customize coverage to fit their unique situation, offering flexibility that basic life insurance does not.

Coverage Scope 

Voluntary life insurance generally covers:  

•  Employee: The main policyholder.  
•  Spouse: Some plans may cover a spouse. 
•  Dependents: Certain plans provide coverage for one child or other dependents.

Quick TIp

Use voluntary life insurance to top up your basic coverage and protect your family, even if you change jobs.

Why Employees opt for Voluntary Life Insurance

There are a multitude of reasons employees might select voluntary life insurance, including:

• Additional Coverage: Supplementing the basic employer-sponsored life insurance to achieve appropriate financial security for loved ones.
• Portability: The ability to keep coverage after leaving employment or if speculation regarding employment status changes, again, depending on the terms of the policy.
• Customization: The ability to select amounts of coverage and beneficiaries that best relate to personal and family needs.
• Affordability: Voluntary life insurance is typically much cheaper than sourcing and purchasing individual life insurance policies on one’s own.

Types of Voluntary Life Insurance

There are generally two types of voluntary life insurance, which are described below: 

• Term Life Insurance: Coverage is provided for a specified term, often up to retirement or for a specified number of years. If the insured passes away during the term, a death benefit is paid. This is the most commonly offered voluntary insurance option because it is the least expensive and simplest type of coverage.  
• Whole Life or Permanent Life Insurance: Permanent policies provide lifetime coverage and a cash value component that accumulates over time. Permanent policies are generally not offered as a voluntary option, since they are much more expensive, but they can be an effective financial planning tool for long-term wealth transfer. 

How Voluntary Life Insurance Works

Voluntary life insurance is an optional, employer-sponsored benefit that allows employees to purchase additional life insurance coverage beyond the basic employer-provided policy.

Enrollment Process: Open Enrollment vs. New Hire Enrollment

Employees can enroll in voluntary life insurance during specific periods:

• Open Enrollment: An annual period when employees can make changes to their benefits without needing a qualifying life event.
• New Hire Enrollment: A window immediately following employment, often offering guaranteed issue coverage without medical underwriting.

Outside these periods, enrolling may require proof of insurability.

Premium Calculation

Premiums for voluntary life insurance are influenced by several factors:

• Coverage Amount: The higher the coverage, the higher the premium.
• Age: Premiums typically increase as age increases.
• Smoker Status: Smokers often face higher premiums.
• Optional Add-ons: Additional features like accidental death benefits can increase premiums.

Premiums are usually deducted from the employee’s paycheck, often using pre-tax dollars, reducing the policyholder’s taxable income.

Payroll Deductions

Premiums are typically deducted directly from your paycheck, making it easy to manage and maintain your coverage without the need for manual payments.

Beneficiary Designation

Designating a beneficiary is a crucial step in the enrollment process. It ensures that the death benefit is paid to the intended recipient. Beneficiaries can be updated as life circumstances change.

Claim Process

In the event of the policyholder’s death, beneficiaries must submit a claim to the insurance provider, providing necessary documentation such as a death certificate. Once processed, the death benefit is paid out according to the policy terms.

Actionable Tip: Step-by-Step Enrollment Example

1. Review Benefits Package: Understand the options available during open enrollment.
2. Determine Coverage Needs: Assess personal and family needs to choose an appropriate coverage amount.
3. Complete Enrollment Forms: Fill out necessary forms, providing personal and beneficiary information.
4. Submit Forms: Return completed forms to the HR department or through the designated enrollment platform.
5. Confirm Coverage: Receive confirmation of enrollment and coverage details.

Understanding how voluntary life insurance works can help you make informed decisions about your coverage options, ensuring financial protection for your loved ones.

Benefits of Voluntary Life Insurance

Voluntary life insurance enables employees to supplement their life insurance benefits for an extra layer of protection and financial security for themselves and their families.

1. Financial Security for Family

If an employee dies, the voluntary life insurance will give beneficiaries a death benefit. This money will help survivors pay for their day-to-day living expenses, their mortgage or rent, and their other financial obligations when it can be difficult to think about finances.

2. Coverage Beyond Employer-Paid Limits

Most basic employer-paid life insurance will provide limited coverage, usually equal to one or two times an employee’s salary. With a voluntary life insurance option, employees can instead purchase additional life insurance benefits at levels typically exceeding or up to five times the employee’s salary, which provides a greater level of financial protection.

3. Peace of Mind for Employees

Knowing loved ones will be taken care of in the event of a premature death will help ease the stress of an employee’s life and a sense of peace in knowing their family will be able to pay for their living expenses. These benefits can result in employees being more focused at work, which leads to better productivity.

4. Optional Coverage for Spouse and Children

For many voluntary life insurance options, employees will also purchase life insurance coverage for their spouse and dependent children. This optional coverage may serve as an additional peace of mind for employees that their entire family has coverage, not just themselves.

5. Portability if Leaving the Company

Depending on the policy, voluntary life insurance may be portable, meaning employees can continue their coverage if they leave the company. This feature ensures that individuals maintain life insurance protection even during career transitions.

Quick Tip

Boost your coverage with voluntary life insurance to protect yourself, your spouse, and children—plus keep it even if you change jobs

Potential Drawbacks

While voluntary life insurance is highly beneficial, there are some considerations:

• Employee-Paid: You cover the cost entirely, which may impact take-home pay.
• Limited Options: Coverage may not be as extensive or flexible as an individual policy.
• Termination Risk: If you leave the company, coverage may end unless portable options are chosen.

Costs and Factors Affecting Premiums for Voluntary Life Insurance

Several key factors influence voluntary life insurance premiums, including your coverage amount, age, health status, lifestyle choices, and any optional add-ons.

1. Coverage Amount

The higher the coverage amount, the higher the premium. Premiums are often calculated per $1,000 of coverage. For example, if the rate is $0.20 per $1,000 and you select $100,000 coverage, your monthly premium would be $20.

2. Age

As you age, life insurance premiums typically increase due to the higher risk associated with older policyholders. On average, premiums can increase by 8% to 10% annually. For instance, a 45-year-old male might pay $12 per month for $50,000 coverage, while a 55-year-old might pay $20 per month for the same coverage.

3. Health and Smoker Status

Smokers generally face higher premiums—often 50% to 100% more—compared to non-smokers due to the increased health risks associated with smoking. Maintaining good health and a non-smoking status can help keep premiums lower.

4. Optional Add-ons

Adding riders such as accidental death benefits or critical illness coverage can increase your premium. These add-ons provide additional benefits but come at an extra cost.

5. Typical Premium Ranges in the U.S. Market

Premiums can vary widely based on the factors above. For example, a 30-year-old non-smoker might pay around $15 per month for $250,000 coverage, while a 40-year-old smoker might pay approximately $35 per month for the same coverage.

Voluntary Life Insurance vs Employer-Paid Life Insurance

Who Should Consider Voluntary Life Insurance?

Voluntary life insurance is especially relevant for: 

• Young families: Protecting mortgage and educational expenses. 
• High-income earners: Ensuring wealth transfer and estate planning. 
• Employees with dependents: Providing financial security in case of untimely death. 
• Those with insufficient basic coverage: Filling gaps in employer-provided plans. 

Conclusion

Employees can boost their financial security beyond employer-paid basic coverage with voluntary life insurance. You choose your coverage amount, include your spouse or dependents, and protect your loved ones financially if anything happens to you.

If you understand how voluntary life insurance works, assess the cost of coverage, consider add-on options, and think critically about your specific family needs, you can make an informed decision to protect your financial future. Whether it is covering spouse and family expenses not covered by employer-paid coverage, adding coverage for ongoing bills, or transitioning to new employment with a guaranteed amount of coverage, voluntary life insurance can be valuable for employees of all age ranges.  

Start today: review your current coverage in place for you and your family, and discuss with your HR team whether or not voluntary life insurance is right for you. Protecting your family by planning for the unexpected