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What Is Voluntary Life Insurance?

Feb 16, 2021 4 min read Riley Adams, CPA

Key takeaways

  • Voluntary life insurance is an easy, affordable way to get coverage through your employer.
  • Choose the amount of coverage you need, and premiums will be deducted from your paycheck.
  • Carrying enough life insurance provides financial security for your loved ones.

 

In light of the COVID-19 health pandemic, you may have wondered what life would be like for your family without you around.

One simple way to ease your worries may be to buy voluntary life insurance through your job. Many employers offer it as a benefit—and it's among the most affordable ways to provide for your loved ones if the worst should happen to you.

Here's a closer look.

 

 

How voluntary life insurance works

Voluntary life insurance is an optional benefit offered by employers and some membership organizations. (With employer-offered plans, it's often on top of coverage—typically equal to one year's salary—you get for free.) You pay regular premiums, deducted from your paycheck. And if you die while covered, the insurer pays a death benefit to your beneficiaries. What's more, because you can take advantage of lower group rates—the employer's policy covers many people instead of one—it's usually more affordable than buying insurance yourself.

You can generally buy voluntary life insurance when you start a new job. Otherwise, your buying window will be shortly after hiring or during your employer's annual open enrollment period.

When choosing, simply select the coverage amount—typically in multiples of your salary—that best suits your needs. The higher the coverage, the more money will be pulled from your paycheck.

The downside: Your coverage might end when your employment does (some group policies can covert to individual ones). So, consider getting enough individual and voluntary life insurance to cover your financial bases.

 

What kinds of life insurance can you get at work?

Employees' expectations have changed. As a result, employers offer more than just health insurance to attract and retain talent. You might find a menu of voluntary benefits that allows you to personalize your financial protection.

Among the most common:

  • Employer-provided life insurance.

    This perk pays a death benefit upon your death. Your employer pays all or most of the premiums, and coverage is often automatic.
  • Term voluntary life insurance.

    This is extra term life insurance you can buy, at lower group rates than you can get on your own. Coverage is often in multiples of your salary. For example, if you make $50,000 a year, you'll be able to buy insurance worth $50,000, $100,000, $150,000 and so on. Higher payouts mean higher premiums—and sometimes medical exams. (Some employers offer permanent voluntary life insurance, which can grow in value.)
  • Voluntary spousal life insurance.

    You can buy this policy for your spouse, also at a group rate. The maximum coverage will typically be lower than yours.
  • Accidental death & dismemberment (AD&D).

    This policy pays out if you die or have severe injuries due to an accident. It's cheaper than other life insurance because it covers fewer causes of death. It can supplement your other coverage.

If you and your employer part ways, there's a good chance you can keep your policy by taking over your payments personally. Ask your benefits department for details.

 

What makes it different

Buying life insurance through an employer or organization can be simpler and, thanks to typically lower group rates, cheaper than getting similar coverage on your own.

Unlike many individual policies, you usually buy voluntary life insurance with no physical exam. (You may need to answer a health questionnaire.)

Many people use this insurance to cover certain costs if their income went away, including:

  • Children's education
  • Payments toward a home mortgage
  • Helping a spouse retire
  • Daily expenses

 

Know your needs and options

Review your overall life insurance needs when considering voluntary coverage. If your employer's limit isn't enough—or you're concerned about losing coverage if you leave your job—a good life insurance calculator or a financial professional can help you learn how much you might need. Also, research your options from multiple insurers to understand which coverage makes the most sense for you and your family.

 

What you can do next

Ask your employer or organization for details on their voluntary life insurance program, and get familiar with your options and costs. Life happens, so set a reminder to review things once a year—during open enrollment—and make sure you have the right amount of coverage for your situation.

Footnotes

 

Riley Adams, CPA, is a senior financial analyst at Google with over a decade of professional experience. He has written for MarketWatch, Kiplinger, MSN, Yahoo Finance, Morningstar and TDAmeritrade, as well as his own personal finance website.

 

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