Voluntary Life Insurance

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 Voluntary whole life builds cash value through investments like mutual funds and ETFs, and excess cash can be withdrawn or borrowed as a loan.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

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