What is voluntary life insurance? Types of voluntary life insurance.
What is voluntary life insurance? Types of voluntary life insurance.
Standard life insurance can help to protect loved ones, providing financial security in the event of a death and when a main source of income is lost.
Voluntary life insurance is a form of life insurance purchased by employers that employees can opt into upon employment. However, most employees must keep the policy active by paying scheduled premiums.
This guide will cover how voluntary life insurance can benefit both employers and employees.
Table of contents
- What is voluntary life insurance?
- Types of voluntary life insurance
- Additional voluntary life insurance
- How does voluntary life insurance work?
- What are the benefits of voluntary life insurance?
- What are the disadvantages of voluntary life insurance?
- Voluntary life insurance FAQ
- Voluntary life insurance cost
What is voluntary life insurance?
Much like standard life insurance, voluntary life insurance provides a beneficiary with a sum of money upon a policyholder’s death.
A standard insurance policy is a contractual agreement between the policyholder and the insurer to provide financial protection in exchange for regular premiums.
Life insurance is an option for people who wish to ensure their beneficiaries will be financially secure after their death.
The beneficiary represents a person who gains a financial reward from a trust, will, or life insurance policy. They are typically the policyholder’s family members. However, the beneficiary can be anyone.
The difference is that voluntary life insurance is an optional benefit that employers offer as part of a comprehensive group life and health insurance plan.
The employee generally pays a regular premium for this benefit, typically every month and sometimes directly from their wages.
Employers can purchase voluntary life insurance at a discounted rate to standard rates. This is due to employers representing many potential policyholders, so they can negotiate better terms.
By grouping people and negotiating for everyone as one entity, employers make an attractive deal and gain more buying power.
Like any life insurance plan, voluntary life insurance will provide a cash payout to a chosen beneficiary (or beneficiaries) upon the policyholder's death.
Types of voluntary life insurance
There are two main types of voluntary life insurance:
- Voluntary whole life insurance
- Voluntary term life insurance
Voluntary whole life insurance
The clue is in the title. Whole life insurance protects the policyholder for the entirety of their life.
Whole life may also protect the policyholder’s dependents for their entire lives but at smaller payout amounts.
There is also a cash value component of a whole life plan. Premiums for whole life are typically more expensive, but they are locked in and usually don't increase.
Voluntary term life insurance
Voluntary term life, also known as group term life, is a policy that protects the policyholder for a limited duration.
In contrast to whole life, term life insurance lasts for a specific period, for example, between 10 to 30 years.
In term life insurance plans, there is no cash value component, and the policy usually has an expiry date. Premium payments can be cheaper than whole life plans. However, the premiums may increase if the policy is renewed.
It is possible to use both types of voluntary life insurance in combination. For example, suppose a policyholder determines their voluntary whole life insurance coverage may not be enough. In that case, they could elect to add a term life policy to their existing coverage.
Additional voluntary life insurance
In addition to a standard voluntary life insurance plan, many insurers provide additional benefits and riders. For example, the option to purchase coverage above the guaranteed issue amount.
Policyholders may be required to prove that they meet minimum health standards, depending on the amount of increase.
Another additional option is coverage portability. This allows policyholders to continue the life policy after their employment contract has ended.
Each employer will have their own rules and methods for porting a policy. Typically speaking, it’s between one to two months after termination, and it will require the completion of paperwork.
There is also the option to accelerate benefits, this can guarantee that the death benefit will be paid to the insured if they are declared terminally ill.
It’s also possible to purchase life insurance for dependents, as defined by the insurers.
Lastly, most employers allow employees to deduct the premiums from their salary via payroll deductions, making it a convenient option for the employee.
How does voluntary life insurance work?
In addition to the previously mentioned advantages, some insurers provide riders such as accidental "death and dismemberment" and waiver of premium riders.
Riders are most often sold at an additional fee and executed at issue. Employees who opt out can reconsider after a qualifying life event, such as the birth of a child or divorce.
Choosing the right type of voluntary life requires examining your current and future needs. This is all personal, depending on each person’s circumstances and plans.
Structure of life insurance
Voluntary life insurance policies are comprised of three essential components.
The policyholder pays the premiums for the insurance coverage, and the insurer determines this amount using actuarial science. This discipline uses statistical concepts to assess the risk of the insured.
For example, according to their level of health, the insured's life expectancy must be estimated. This estimation is based on factors such as age, health condition, and occupational risks.
The death benefit is the value guaranteed to the policyholder’s beneficiaries in the event of their death. The death benefit represents the amount of money that is estimated to be needed by the beneficiaries.
The cash value works like a savings account. This amount can be dipped into at any time to pay for premiums or upgrade a plan.
What are the benefits of voluntary life insurance?
The benefits of voluntary life insurance will depend on the type of policy chosen. As noted earlier, prospective policyholders (and employers) can choose between term life and whole life. Both plans can also be referred to as group life insurance.
Overall, one of the main benefits offered for both plans is the death benefit, which is the guaranteed payment when an insured employee passes.
Voluntary term life insurance policies outline that the employee must pass away during the specified term for the beneficiary to receive a payout.
On the other hand, a voluntary whole life insurance policy guarantees the beneficiary will get the death benefit whenever they pass.
Employees may be able to scale up the death benefit amount if the employer specifies that to be part of the plan.
Another main benefit of both plans is that voluntary life plans are usually portable. This portability allows employees to keep their life insurance benefits even if their employment contract ends. However, that is dependent on each company’s terms and conditions.
Employers can make other riders or add-ons available to employees when choosing what plans they will buy.
One popular add on is the option to accelerate benefits. This option can grant the death benefit to be paid early if the employee becomes terminally ill.
What are the disadvantages of voluntary life insurance?
Voluntary life insurance policies also come with disadvantages, depending on what you’re looking for in a policy.
Even if you have a health condition, a medical exam is usually not required to be eligible for your employer’s standard life insurance.
However, when it comes to voluntary life insurance, the insurer might ask questions about your health, and your eligibility for insurance is then dependent on your answers.
The insurer could approve the coverage, request a physician’s statement from you, or invite you to a life insurance medical exam.
Regarding one of the benefits of voluntary life, some voluntary life insurance policies are not portable. This means that the insurance benefits end when you leave your job.
One of the drawbacks to voluntary life is the number of hours you might need to work to be eligible for it. Suppose the employer only offers coverage to full-time employees, and you’ve taken a part-time role.
Whether you’re an employer or an employee, here are some of the key takeaways about voluntary life insurance.
There are two main types of voluntary life insurance: term and whole life.
Whole life insurance will last for the entire lifetime of an employee.
A voluntary life policy can provide additional coverage on top of a standard plan.
Voluntary life insurance is usually paid via monthly premiums.
A payroll deduction can pay for employer-provided plans.
Employer-provided plans are typically less expensive than most available to individuals on the market.
Voluntary life is available to most full-time employees upon hiring or shortly after.
Whole life insurance plans can give employees access to the cash value of a policy.
Cash value accumulates over time in a tax-free savings account.
Some employers allow an employee's dependents as additional insured at an extra cost.
If you’re an employer, research has shown that voluntary life insurance may help to boost employee productivity and overall happiness.
Voluntary life insurance FAQ
What is the difference between group and voluntary term?
Voluntary term life insurance and group term life insurance are often used interchangeably.
Voluntary life insurance provides financial protection to employees, whereas group term life insurance is not limited to employees as it offers financial help to other groups.
Also, voluntary term insurance usually offers different levels of coverage, while group term insurance is provided at one level for all employees.
What is voluntary dependent life insurance?
This life insurance (and employee benefit) can cover any eligible dependents, depending upon the policy rules.
This insurance is an agreement that the employee would receive the death benefit if a dependent dies.
How much term life insurance do I need?
An employer typically limits voluntary term life to 1-2 times the amount of your annual compensation.
As a rule of thumb, other companies will set a cap between $50,000 - $250,000 in coverage.
Is voluntary life insurance term or whole?
Most voluntary life insurance policies are term policies ranging from 10 - 30 years, but both options are available.
Voluntary whole life policies can include a cash value account that builds over time and doesn’t expire. Voluntary whole life policies are beneficial if you move to a different employer.
Does voluntary life insurance cover accidental death?
Some voluntary life insurance policies include accidental death & dismemberment (AD&D) coverage, or you can buy it separately.
Your AD&D policy will pay out if you die or suffer severe injuries from an accident.
Accidental death & dismemberment is cheaper than other life insurance because it covers fewer causes of death. As an add-on, it can supplement your other insurance.
Voluntary life insurance cost
Whether you’re considering employer-based life insurance as a supplement or buying your own individual life insurance policy, the costs will vary based on several factors.
It’s worth comparing an employer's offer with those of insurance agents to ensure the policy is right for you and contains the best that there is to offer.
To know your options and determine the average costs for voluntary insurance, you should apply for a free quote.
Voluntary life insurance quote
With 35 years of experience, Pitsas Insurances can guide you to make the best choices according to your needs.
Whether you’re an employer or an employee, we can help you pick and choose the right life insurance that fits your particular requirements.
Why choose life insurance with Pitsas Insurances?
- Tax benefits and deductions
- Immediate mortgage payment cover
- Considerable financial income for family members
- Coverage of expenses for your children’s education
- Connect the policy with your medical insurance and save up to 25%
Life insurance Cyprus
For companies registered in Cyprus, you can receive a quotation from Pitsas Insurances by completing the quotation.
If you have any more questions, contact our insurance experts and work with a licensed agent. We offer a fast turnaround.
For more about how our team of insurance experts can help you, see here.