Voluntary Life Insurance: An Employee and Family Guide
By Nabamita Sinha
28 April, 2025
Business
With uncertain financial times, protecting your loved ones’ future is more important than ever. Life insurance is an essential safety net, but it can be overwhelming to navigate the various options.
One choice worth considering for working individuals knowing what is voluntary life insurance, an employee-added benefit most employers offer.
This guide explains what is voluntary life insurance, its forms, benefits, drawbacks, costs, and how to choose the right protection.
What is Voluntary Life Insurance?
Voluntary life insurance is employer-sponsor, employee-paid, and voluntary employee-offered life insurance coverage.
It allows employees to purchase extra coverage beyond any required life insurance and is provided by the employer at no cost.
This coverage is typically less expensive than individual life insurance since it is provided at group rates negotiated by the employer. Voluntary life insurance is economic coverage that sends money to specifically designation beneficiaries on the policy owner’s death.
It is sold at least, if not at all, at underwriting when there is not much to offer in terms of coverage, and as a result, it remains accessible even to individuals with medical restrictions.
Voluntary life insurance is comparable to individual coverage, but it is provided and administered through the workplace. The amount of protection wished for is determined by the employee, usually in certain dollar amounts, and taken from the paycheck as the premium.
Important Features:
- Enrollment: Provided on new hire or once-a-year annual open enrollment.
- Premium Payments: Pre-tax paid or after-tax out of the paycheck.
- Policy Name: Accidental death, whole life, and term life included.
- Beneficiaries: The employee chooses the beneficiary or beneficiaries.
- Portability: Other policies allow the policyholder to retain the coverage when the company’s employment changes, and this can be achieved by converting the coverage into individual protection from a group policy.
Voluntary Life Insurance Forms
Voluntary life insurance is written in different forms, mainly for different purposes. The most popular among them are:
Voluntary Term Life Insurance
Voluntary term life insurance covers a person for a specific number of years—10, 20, or 30, for example. If death occurs before the policy expires, a death benefit is paid to the beneficiary.
Features:
- less expensive
- no cash value
- may be renewed, although it is more expensive
- best for temporary financial responsibilities (e.g., mortgage, life, child-raising years)
Voluntary Whole Life Insurance
Whole life insurance provides lifetime protection and a cash value feature that accumulates over time. It’s expensive but has permanent coverage.
Features:
- Level premiums
- Guaranteed death benefit
- Cash value available through loans or withdrawals
- Ideal for long-term planning
Accidental Death and Dismemberment (AD&D)
AD&D insurance pays upon accidental death or the suffering of disabling injuries like loss of limbs, eyes, or hearing.
Features:
- Purchased frequently as a rider or a separate policy
- Low cost
- Added value to basic life insurance
What is Voluntary Life Insurance: Advantages and Disadvantages
Voluntary life insurance is a low-cost and easy-to-obtain option, but it must be carefully negotiated to effectively combine strengths and weaknesses.
Advantages of Voluntary Life Insurance
Here are a few advantages of what is voluntary life insurance, that you should know about before you start voluntary life insurance.
Low Cost of Coverage
Some plans offer guaranteed issue levels, allowing individuals to sign up without undergoing a medical test, particularly during the initial eligibility phase.
Simple Payment System
It is paid out of salary, and therefore, the payment system is less complication.
Least Expensive
Group pricing is more expensive than purchasing individual life insurance policies, especially for healthier and younger individuals.
Family Member Coverage
Employees can usually purchase additional coverage for dependents and spouses at group rates with low premiums.
Disadvantages of Voluntary Life Insurance
As well as advantages there are certain disadvantages of voluntary life insurance that you should know about as well.
Small Amounts of Benefits
Policies can restrict benefits to a level that will not cover all the cash needs (e.g., to restrict to $500,000).
Employ-Originated Policy
Coverage typically terminates with job loss except for employee porting or policy conversion, which is more costly.
Less Flexibility
There are fewer choices and fewer volunteers than with individually bought individual life insurance.
How Much Voluntary Life Insurance Is It Going to Cost
The voluntary life insurance cost is premised on a humongous number of considerations:
- Age: Older employees pay more.
- Amount of Coverage: Greater coverage, greater cost.
- Policy: Whole life insurance is costlier than term life insurance.
- Tobacco Use: Users of tobacco will pay a significantly higher premium.
Example Premiums (Monthly):
- Non-smoker, 30, $100,000 term insurance policy: $5–$10
- Smoker, 40, $100,000 term insurance policy: $15–$30
- Non-smoker, age 30, $100,000 whole life insurance policy: $40–$70
Group premiums are low, and employers even pay a portion.
To determine a coverage level adequate for your needs, consider your long-term objectives and both current and future financial responsibilities. Use the guidelines below to make an estimate:
Income Replacement
Experts recommend insurance coverage equaling 7–10 years’ worth of your yearly income.
Outstanding Debts
Add up your car loan, home mortgage, student loans, and charge card debt.
Education Expenses
Add the cost of your children’s college education in the future.
Final Expenses
Funeral and burial costs will total over $10,000.
Dependent and Spouse Needs
Ensure that your dependents or spouse will be able to maintain a normal lifestyle.
Example Calculation:
- Salary: $60,000 x 10 = $600,000
- Mortgage: $200,000
- Education: $100,000
- Final Expenses: $15,000
- Total Recommended Coverage: $915,000
Your company can even provide you with computer programs or internet-based calculators on the web to determine the right amount of coverage for your case.
Know What is Voluntary Life Insurance!
Voluntary life insurance is an affordable and practical benefit that can provide your employees and their families with peace of mind. Whether you are young and recently divorce or older with dependents who depend on your income.
Although inexpensive and convenient, a voluntary term can provide future needs with the power of money through voluntary whole life insurance. AD&D can add to provide additional protection for unforeseen, life-altering occurrences.
Finally, the ideal plan is to think. Think of your goals. Think of them in relation to money. You can get information about the levels of coverage. Think. Think about the alternatives for your company when you enroll.
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