What is Voluntary Life Insurance?
Should I get voluntary life insurance?
What are the essential elements you should know!
In this article, we will break down the definition of Voluntary Life Insurance so you know all there is to know about it!
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What Is Voluntary Life Insurance
A voluntary life insurance is a type of insurance coverage offered by employers to their employees as an optional benefit where the beneficiary receives a cash payout upon the death of the insured.
In most cases, having the employer sponsor this type of insurance product allows for the insured (the employees) to benefit from a lower premium payment.
Quite often, the employees will pay the voluntary employee life insurance premium payments through payroll deduction managed by their employer.
Voluntary Life Insurance Definition
According to Investopedia, a voluntary life insurance is defined as:
Voluntary life insurance is a financial protection plan that provides a cash benefit to a beneficiary upon the death of the insured. It’s an optional benefit offered by employers.
In other words, a voluntary term life is:
- An insurance policy
- Providing financial protection
- Upon the death of the insured
- Offered by employers to employees
How It Works
A voluntary life or voluntary life and AD&D is generally offered to employees when they are hired by a company or soon after.
An employee may choose to opt-in or opt-out of the voluntary employee life and AD&D coverage.
If the employee opts in, then the voluntary term life may offer various options and benefits:
- An employee may be able to purchase coverage above the guaranteed issue amount
- An employee may have coverage portability allowing them to continue the policy even after their employment termination
- An employee may have the option to accelerate benefits where the cash payout is paid during the life of the insured instead of death
- Other optional riders can include waiver of premium, accidental death and dismemberment
Voluntary life insurance is typically a “guaranteed issue” for up to some limit.
In other words, the insured does not need to take a medical exam to prove that he or she meets the coverage requirements.
This is a good option for individuals having a medical condition preventing them from purchasing life insurance.
Types of Voluntary Life Insurance
There are two main types of voluntary life insurance policies:
- Voluntary whole life (also known as group term life insurance)
- Voluntary term life
A “voluntary whole life insurance” is a type of policy providing coverage for the entire life of the insured.
The insured may also choose a whole life coverage for his or her spouse or dependents who may also be protected for their entire life as well.
In such insurance policies, the insured is able to accumulate the cash value and get a fixed rate of interest on it or earn more by investing in equity funds.
This type of policy is less common than term insurance policies.
A “voluntary term life insurance” is a policy that offers the insured protection for a certain period of time such as 5, 10, or 20 years.
With this type of policy, the insured can expect to pay a lower premium than whole life policies.
Unlike the whole life, term life policies are not taken by the insured for the purpose of developing cash value over time.
In other words, the voluntary term insurance offers coverage without the buildup of cash value in the policy.
Voluntary Life Insurance vs Standard Term Life Insurance
A “voluntary” life insurance is a type of insurance policy offered by employers to their employees providing financial protection to the insured upon death.
The voluntary life insurance policy has the following characteristics:
- It has limit that is guaranteed issue meaning that regardless of the person’s medical condition, coverage for a certain limit is guaranteed
- The employee benefits from the coverage and death benefit levels offered by the employer
A standard term life insurance is a policy that is purchased by a person privately.
The person subscribing to this type of policy will be asked to pay a premium to obtain coverage in the event of death.
With a standard term policy, the insured will generally be required to complete a medical questionnaire or have you authorize that the insurance company access your medical records.
If a person has a previous medical condition, the insurance company may either refuse to issue a policy or charge high premiums.
By purchasing an insurance policy privately, you can have a wider range of choices and benefits to choose from whereas in a voluntary life insurance offered by your employer, you must stay within the parameters and options offered by your employer.
A term policy purchased on your own will remain in effect for the term of the policy and will not be affected if you change jobs.
On the other hand, a voluntary life policy will need to be converted if you lose or change jobs (some policies do not offer conversion privileges).
Voluntary life Plan Takeaways
So, what is Voluntary Term Life Insurance?
What is voluntary employee life insurance?
Let’s look at a summary of our findings.
Voluntary Life Coverage Insurance
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