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 Voluntary whole life builds cash value through investments like mutual funds and ETFs, and excess cash can be withdrawn or borrowed as a loan.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. Guaranteed Issue Life Insurance ...

    A type of financial-protection policy that provides cash to a ...
  2. Term Life Insurance

    A policy with a set duration limit on the coverage period instead ...
  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. Key Person Insurance

    A life insurance policy that a company purchases on a key executive's ...
  6. Decreasing Term Insurance

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

    How Whole Life Insurance Works

    Whole life insurance combines insurance and an investment component for policyholders.
  3. 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.
  4. Financial Advisor

    Which Life Insurance is Right For You?

    Consumers have choices when it comes to life insurance. Knowing your future needs for cash or retirement can make the difference in what you select.
  5. 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.
  6. 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.
  7. Financial Advisor

    Buying a Life Insurance Policy? Read This First

    Knowing who needs life insurance, how it works and the different types of insurance can help consumers make informed decisions about this product.
  8. Insurance

    Dividend-Paying Whole Life Insurance: What to Know

    Many whole life insurance policies pay dividends. Here are what policyholders need to consider.
  9. Insurance

    4 Things That Keep You From Getting Life Insurance

    We look at four common reasons people give for not applying for life insurance, and see if they're legitimate.
Hot Definitions
  1. Interest Expense

    The cost incurred by an entity for borrowed funds. Interest expense is a non-operating expense shown on the income statement. ...
  2. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  3. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
  4. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
  5. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  6. Backward Integration

    A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
Trading Center