What Is Voluntary Term Life Insurance?

Learn about voluntary term life insurance and whether it's the best coverage option for you.
By Mike Parker
Updated Jul 30, 2022
An employer offering an employee Voluntary Life Insurance.
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Voluntary life insurance, also known as supplemental life insurance, is an optional employee benefit offered by employers.

Another option is voluntary term life insurance, which can be tailored to meet changing needs as people age. However, it’s important to understand your options before you decide on any life insurance coverage.

This guide will cover what voluntary term life insurance is, how it compares to voluntary whole life insurance, and what you should consider before signing up for it.

What Is Voluntary Life Insurance?

Voluntary life insurance, also known as supplemental life insurance, 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 term life insurance works the same as other types of life insurance and employees have to pay a monthly premium to get coverage.

What Is a Death Benefit?

A death benefit is another word for the payout that beneficiaries will receive after the insured's death. It is also sometimes called the face value of an insurance contract.

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

  • Lump sums.

  • Annuities.

  • Monthly payments.

  • Retained asset accounts.

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.

Voluntary life insurance is typically more affordable because employers sometimes cover part of the plan's monthly costs.

For example, let’s say your employer offers voluntary term life insurance with coverage of $50,000 and a monthly premium of $70. Your employer may cover 25% of the cost ($17.50), which means that you’ll only pay $52.50 per month. 

Enrolling in a voluntary term life plan will depend on when your company offers it. Your employer will usually allow you to enroll during the company's annual enrollment period or when a qualifying life event happens.

Qualifying life events can include:

  • 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.

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

Enrollment Period: An enrollment period is a set of dates during which a person can sign up for insurance or make changes to their coverage.

Voluntary life policies are usually guaranteed issue up to some limit on the death benefit. 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 a maximum limit of $15,000 in 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 guaranteed issue, and the person would be subject to underwriting before they could join the policy.

What Is Underwriting?

Underwriting is the procedure by which a person or a company accepts financial risk in exchange for a fee. Most of the time, this risk is associated with loans, insurance, or investments.

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

An elderly couple signing up for Voluntary Life Insurance.

Source: Pexels

What Is Term Life Insurance?

Term life policies work similarly to other types of life insurance. They 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 company pays out a death benefit. 

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

Coverage periods will depend on your insurer and you can get a term life plan for any length of time that you choose.  

Pros and Cons of Term Life Insurance

Affordable.Coverage is not lifelong.
Coverage for the most financially vulnerable years.No cash value accumulation.

What Is Voluntary Term Life Insurance?

There are two basic types of voluntary life insurance: term and whole life. Employers are more likely to provide optional term life insurance than voluntary whole life insurance.

Whole life or other permanent policies provide coverage for the rest of your life, whereas a term life policy is only intended to cover a specified period.

These policies offer lower premiums because insurers predict that the policyholder would outlive the policy's terms and then they will not have to pay out the death benefit.

While not as comprehensive as voluntary whole life insurance, these policies are frequently chosen by parents seeking financial security for their children's future.

You can expect to pay premiums via payroll deduction, whether you choose a voluntary term or voluntary whole life insurance policy.

How Do I Know If Voluntary Term Life 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 at 1-888-912-2132 to get personalized assistance from one of our skilled Medicare consultants.

What Does Voluntary Life Insurance Cover?

Voluntary life insurance policies pay out a death benefit that can be used for any expenses your beneficiaries might have. 

However, in some cases, you may be able to request that the money must be spent on specified costs such as college tuition, funeral costs, or mortgage repayments.

If you require more coverage than your optional policy provides, you will need to purchase additional coverage separately.

This will help you continue with your basic plan's level of coverage whilst adding benefits that can offer you insurance that your basic coverage didn’t include.

People meeting with their insurance agents to find out what Voluntary Life Insurance covers.

Source: Pexels

Who Needs Voluntary Term Life Insurance?

Voluntary term life insurance is a good option for anyone who is looking to supplement their basic life insurance. 

Because employers usually cover some of the monthly cost, these plans are quite affordable for people who are early-career professionals. They are also a good choice for people who don't qualify for life insurance because of a medical condition or a high-risk lifestyle.

The great thing about voluntary term life insurance is that you can always purchase other insurance if you require more coverage. 

What Does Portability Mean?

Portability is an insurance feature that enables you to transfer your life insurance coverage when you move jobs. This can be useful if you quit a job or your employer no longer offers life insurance as a benefit.

It may not be a permanent answer, but it does help you to prevent any gaps in life insurance coverage that could otherwise occur.

Voluntary Term Life Insurance Vs. Voluntary Whole Life Insurance

Voluntary Whole Life InsuranceVoluntary Term Life Insurance
A policyholder receives coverage for their entire life. As long as they continue to pay their premiums, their life insurance will continue.Only offers protection and coverage for a limited time period. These periods can last 5, 10, or even 30 years at a time.
Has a cash value that can build up and gain interest, similar to permanent whole life policies.Does not build up a cash value like whole life insurance.
More expensive because of higher premiums.More affordable with lower premiums.
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.

Voluntary Life Insurance Vs. Individual Life Insurance

If you have the option, buying voluntary term life insurance often makes sense because it's inexpensive, offers tax-advantages, and is easy to obtain through your work.

An alternative to voluntary life insurance could be an individual term life policy that:

  • Allows you to choose the right coverage amount for you and your family.

  • Stays with you through job changes.

  • Has more options for customization (including coverage amount and adding riders.)

What Is An Insurance Rider?

A rider adds benefits to or modifies the conditions of a basic policy. Another term for an insurance rider is an insurance endorsement.

Riders may give insured parties extra coverage alternatives, or they may restrict or limit coverage.

Keep in mind that if you buy a rider, there will be an additional cost each month. However, these costs are generally low.

Coverage AmountLimited levels of coverage offered.Lets you choose your own coverage amount.
Medical ExamNo medical exam.Exam may be required.
PortabilityMight not come with you if you switch jobs.Guaranteed protection for the full term.

A young couple signing up for Voluntary Life Insurance.

Source: Pexels

Where Can I Learn More about Life Insurance Plans?

If you’re interested in learning about the various types of life insurance and all their benefits, be sure to check out our life insurance hub.

We have articles on costs, plans, coverage, and providers that will help you understand your life insurance options.

You can also reach out to our team of life insurance agents to find out how much life insurance you need and get answers to your life cover questions. Call us at 1-888-912-2132 or send an email to help@policyscout.com to find out more.