What is 'Voluntary Life Insurance'

Voluntary life insurance is a financial protection plan that provides a beneficiary with cash in the event that the policyholder dies. Voluntary life insurance is an optional benefit offered by employers, where an employee pays a monthly premium in return for cash paid to beneficiaries upon death. The premiums, which are based on age and the amount of insurance purchased, may be less expensive than individual life insurance premiums because of an employee group discount.

BREAKING DOWN 'Voluntary Life Insurance'

Standard voluntary life insurance policies guarantee cash paid to a person's beneficiaries if he becomes deceased. However, some voluntary life insurance plans offer additional benefits. One benefit is the option to purchase insurance above the guaranteed issue amount by providing evidence of good health. Another is coverage portability if the policyholder changes jobs. A third is the ability to accelerate benefits if the policyholder becomes terminally ill. Finally, there is the option to purchase life insurance for spouses, domestic partners and dependents.

An Example of Additional Benefits

For example, the city of Houston, Texas, offers a basic voluntary life insurance policy that has additional benefits for its municipal employees. These add-ons include accelerated death benefits if a person comes down with a terminal illness and is expected to become deceased within 12-months. They also include accidental occupational death benefits, conversion of life insurance upon termination and a waiver of insurance premiums for the disabled.

Types of Voluntary Life Insurance

There are two types of voluntary life insurance policies provided by employers. The first is voluntary whole life insurance and the second is voluntary term life insurance.

Voluntary whole life protects a policyholder and his family throughout the entire life of the policyholder. This is even the case after a policyholder stops paying premiums after a certain age. Voluntary whole life builds cash value through investments like mutual funds and ETFs, and excess cash can be withdrawn or borrowed as a loan.

Voluntary term life insurance is a policy that protects a beneficiary and his family for a specified period only. Unlike voluntary whole life insurance, which provides protection throughout a person's life, the protection period for term life is usually 10 or 20 years. Monthly premiums also do not build cash value. Instead, the full value of the voluntary term life insurance policy is paid to beneficiaries upon death of the policyholder. However, this type of life insurance is cheaper than the whole life alternative.

Voluntary life insurance is a good idea for a person because if he enrolls within a short period of becoming employed, he often does not have to provide evidence of good health to be insured up to the guaranteed issue amount. Thus, by participating in a standard group voluntary life insurance plan, individuals who might not otherwise be eligible for life insurance can obtain coverage. However, the guaranteed issue amount may not provide as much life insurance as the policyholder needs when compared to other policies.

RELATED TERMS
  1. Universal Life Insurance

    A type of flexible permanent life insurance offering the low-cost ...
  2. Guaranteed Issue Life Insurance ...

    A type of financial-protection policy that provides cash to a ...
  3. Unbundled Life Insurance Policy

    A type of financial protection plan that provides cash to beneficiaries ...
  4. Wholesale Life Insurance

    A type of employer-sponsored protection against the loss of income ...
  5. Variable Universal Life Insurance ...

    A form of cash-value life insurance that offers both a death ...
  6. Decreasing Term Insurance

    A type of annual renewable term life insurance that provides ...
Related Articles
  1. Insurance

    Whole or Term Life Insurance: Which Is Better?

    Learn the difference between term life insurance and whole life insurance. Understand when it is beneficial to buy each type of life insurance.
  2. Insurance

    Understanding Taxes on Life Insurance Premiums

    Learn about the tax implications of life insurance premiums, including when they might be taxable and whether they are tax deductible.
  3. Retirement

    Understanding Different Types of Life Insurance

    Understand the various types of life insurance, how each can be used in personal or business financial planning, and for whom they are best-suited.
  4. Retirement

    How Whole Life Insurance Works

    Whole life insurance combines insurance and an investment component for policyholders.
  5. Insurance

    What's Better: Whole Life or Term Insurance?

    Life insurance can be a difficult decision to make, especially for a young adult. Here's a look at the benefits and costs of getting whole life insurance.
  6. Insurance

    Getting Your (Insurance) House in Order

    From starting a family to retirement, insurance can play a role in taking care of financial needs. This piece looks at some of the choices you can make.
  7. Financial Advisor

    Getting Life Insurance in Your 20s Pays Off

    Find out how Americans in their 20s can benefit from a well-thought-out life insurance policy, especially if they are able to build cash value for retirement.
  8. Insurance

    Whole or Term Life Insurance? The Definitive Guide

    The math is clear, term life insurance is the right choice to protect against economic loss.
  9. Insurance

    Term Life Insurance: Everything You Need to Know

    Term life insurance is an affordable way to financially protect your loved ones after your death. Here's what you need to know before purchasing a policy.
Hot Definitions
  1. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ability to pay short-term and long-term obligations, also known ...
  2. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
  5. Indirect Tax

    A tax that increases the price of a good so that consumers are actually paying the tax by paying more for the products. An ...
  6. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
Trading Center