What Is Voluntary Life Insurance?

Find out everything you need to know about voluntary life insurance.
By Mike Parker
Updated Sep 4, 2022
A couple signing up for Voluntary Life Insurance with their Insurance agent.
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If your company, union, or organization offers it, voluntary life insurance is a good way to get cover for your financial assets.

This is especially true for people who do not qualify for traditional life insurance due to health reasons or financial constraints. 

Read our guide to understand what voluntary life insurance is, who should get it, and what alternatives there are.

What Is Voluntary Life Insurance?

Voluntary life cover is a form of life insurance offered by employers, unions, and professional associations. The reason it's called “voluntary” life cover is that employees have the option of purchasing these plans but aren’t obligated to do so.

Voluntary life insurance is employer-sponsored insurance that staff can obtain if they want to supplement their primary group or private life insurance plan. 

The employee will have to pay monthly premiums in order for their beneficiaries to receive a death benefit from their policy. 

What Is a Death Benefit?

A death benefit is the term for the payout amount that beneficiaries will receive after the insured's death.

Death benefits are tax-free and can be paid out in different ways, such as:

  • Lump sums

  • Annuities

  • Monthly payments

  • Retained asset accounts

Voluntary life insurance through your employer is typically more affordable because your employer pays part of the premium costs each month. 

Some individual life insurance policies can be difficult to qualify for if you have chronic health conditions, so getting a voluntary life insurance policy can be a helpful alternative.

Employees can buy or change their voluntary life insurance plan during their company’s annual open enrollment period. They can also sign up for voluntary life insurance when qualifying life events happen, including:

  • The birth or adoption of a child

  • Coverage loss

  • Death in the family

  • Divorce

  • Marriage

Terms You Should Know:

Beneficiary: A person who receives the death benefit (payout) from a life insurance policy in the event of the policyholder’s death.

Life Insurance Premiums: These are monthly or annual amounts that policyholders pay to keep their coverage.

Insurance Riders: An insurance rider adds benefits to an insurance policy or extends its coverage. They customize coverage to fit the policyholder's needs. The insured person pays an extra premium for riders.

Death Benefit: This is the amount paid to the beneficiary of an insurance policy after the policyholder’s death.

Living Benefits: These are any benefits that a policyholder can use while they are alive. The most common example is a cash value account. However, insurance riders, such as disability cover or AD&D (accidental death and dismemberment) cover, are also considered living benefits.

Cash value account: This is a type of savings account that policyholders with permanent life insurance can use to build up additional wealth through their policy.

Voluntary life policies are usually guaranteed issue. This means you won’t be denied for health reasons if your life insurance coverage is within your company's prescribed range. For example, let’s say a business offers its employees $15,000 of voluntary life coverage. If a person with chronic heart disease signs up and then dies, their claim will be paid without any investigation. However, if the person asked for more coverage, let’s say $30,000, their policy wouldn’t be a guaranteed issue, and the person would be subject to underwriting before they could join the policy. 

The life insurance company would likely also investigate the cause of death after a claim is lodged, to rule out insurance fraud.

A man and woman signing up for Voluntary Life Insurance.

Source: Pexels

Types of Voluntary Life Insurance

When choosing voluntary life insurance, you have two coverage options: 

- Voluntary Whole Life Insurance:

Permanent or whole life coverage is a life insurance policy that does not expire and stays in place for your entire life. 

These life insurance contracts only end when the policyholder stops paying their premiums or surrenders their policy.

- Voluntary Term Life Insurance:

Term life insurance policies are contracts between policyholders and insurance companies that financially cover people in the event of their death.

Policyholders pay the insurance company a monthly premium and when the policyholder dies, the insurance provider pays out a death benefit.

The difference is that term life insurance plans only offer coverage for a fixed period. The word “term” refers to a period or length of time.

Let’s take a closer look at both of these options.

Voluntary Whole Life InsuranceVoluntary Term Life Insurance
With voluntary whole life insurance, a policyholder receives coverage for their entire life. As long as they continue to pay their premiums, their life insurance will continue.This type of life insurance only offers protection and coverage for a limited time period. These periods can last 5, 10, or even 30 years at a time.
Like permanent whole life policies, a voluntary whole life insurance policy has a cash value that can build up and gain interest.A voluntary term life insurance policy does not build up a cash value like whole life insurance. However, these plans are generally more affordable.
A whole life insurance policy can also be bought for a spouse or a dependent and will cover them for their entire life, too.Depending on the insurance company that administers your voluntary plan, you may be able to add riders to customize your voluntary coverage.

A group of people deciding whether to choose whole life insurance and term life insurance.

Source: Pexels

What is a Rider?

Sometimes referred to as insurance riders, a rider is an addition to an insurance policy which increases coverage for the policyholder. There are many different types of riders or terms you can add to a life policy. Some of the more popular options are disability cover, AD&D cover, and life insurance for children.

For example, if a person adds an AD&D rider to their life insurance, their life policy will now cover  accidental death and dismemberment.

Who Should Get Voluntary Life Insurance?

People who might not be able to get traditional life cover are good candidates for voluntary life insurance. This is because most voluntary life insurance plans don’t require a medical exam and interested parties simply apply through their place of employment.

Voluntary life insurance is also a good choice for people who already have a term or permanent life insurance policy, but want to get additional financial coverage. 

For example, let’s say that a person in their 30s has recently become a parent. Previously, they had term life coverage for $250,000. However, they now have additional responsibilities and may require extra coverage.

Because of financial constraints,  they may not be able to afford a policy with a higher death benefit. 

If their employer offers voluntary life insurance, they can potentially get additional coverage at a lower rate than what they’d pay for a private policy.

How Do I Know If Supplemental Insurance Is Right for Me?

If you have any questions regarding voluntary life insurance policies or anything else related to life insurance, send your questions to Help@PolicyScout.com or call us on 1-888-912-2132 to get personalized assistance from one of our skilled Medicare consultants.

The Benefit of Voluntary Life Insurance

Voluntary life insurance premiums are usually more affordable than traditional forms of life cover, such as permanent life insurance and term life insurance.

Voluntary life insurance plans are also easier to qualify for and usually don’t require applicants to complete a medical exam. 

That being said, getting voluntary term or permanent life insurance depends on whether your employer offers it. If your company or union doesn’t currently have a voluntary life insurance policy, consider getting other life insurance in the meantime. There are low-cost options, such as final expense insurance, and guaranteed issue life insurance which you can apply for. To learn more about the insurance plans available to you, speak to one of our agents to discuss your options and find life providers in your area.

Takeaways for Voluntary Life Cover

  • Voluntary life coverage amounts are predetermined by the company offering the policies. 

  • Voluntary life insurance plans don’t require applicants to undergo medical exams, as long as they get coverage within their company’s offered range.

  • The employer or organization that offers voluntary life insurance to their employees or members will usually pay a portion of the monthly premiums.

An Example

A company offers all of its employees voluntary life policies with $20,000 coverage.

The employer agrees to contribute 55% of the monthly premiums. Employees who want to join won’t have to go through a medical exam when they apply.

However, an employee wants to get coverage of $30,000 ($10,000 more than the company’s limit).

Their employer may only cover 30% of the premiums and the employee may be required to go through a medical exam before they qualify.

A man that is happy because he has Voluntary Life Insurance.

Source: Pexels

Voluntary Life Insurance vs. AD&D Insurance vs. Disability Cover

Some people confuse AD&D insurance, disability coverage, and voluntary life insurance. 

All three are typically offered by employers, so it’s easy to understand why there might be some confusion. However, these three policies are distinct and serve different purposes: AD&D Insurance or accidental death and dismemberment insurance usually cover policyholders for specific events. 

The cause of the injury or death must be accidental and unforeseen in order for it to be covered.

For example, if a person is injured or killed in a workplace event that isn’t accidental, their insurance won’t pay out a death benefit to their beneficiaries.

AD&D is a form of supplemental life insurance which means it isn’t a replacement for primary life insurance, such as term or permanent life cover. Disability Insurance will cover a policyholder in cases where they become injured, regardless of the cause. 

If a person sustains an injury that prevents them from being able to work, their disability cover will pay out a benefit to sustain them. 

Your employer or union might offer disability cover as a group benefit if you work in a high-risk industry, such as security, lumbar, or oil.

To learn more about these plans and other options, reach out to one of our consultants. They will be able to walk you through each type of plan and tell you which providers are the best for your needs.

Things to Keep In Mind with Voluntary Life Cover

Before you buy voluntary life insurance, keep these points in mind:

  1. Voluntary life insurance is supplemental life cover and shouldn’t take the place of permanent coverage.

  2. While you may be able to pay lower premiums for a good amount of coverage, you also must consider how your coverage will be affected if you decide to change jobs.

  3. It’s important to look at the type of insurance your company or union is offering. If it’s term voluntary life insurance, make sure that you are aware of the length of your coverage.

  4. It’s always a good idea to look at other alternatives before you settle for a voluntary life insurance plan. There are life insurance plans that can offer you similar coverage and won’t cost you a fortune every month.

A couple who is happy because they have voluntary life insurance.

Source: Pexels

Where Can I Learn More about Life Insurance?

Life insurance can be confusing, that’s why we’ve created our life insurance hub to help you. If you’re interested in finding out more about term, permanent, group, or final expense insurance, read our articles to learn more.

If you’re currently looking for life insurance or are curious about which policy is best, get in touch with one of our professional consultants for tailored advice. Send us an email at help@policyscout.com or give us a call at 1-888-912-2132.

For more information, insurance quotes, and to get the process started, visit PolicyScout today.