Voluntary Life Insurance (Definition: What Is It And How It Works)

What is Voluntary Life Insurance?

Should I get voluntary life insurance?

What are the essential elements you should know!

Keep reading as we have gathered exactly the information that you need!

Let’s dig into our insurance knowledge!

Are you ready?

Let’s get started!

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

  • A voluntary life insurance is an optional life insurance benefit offered through employers at the workplace
  • It is generally offered in addition to basic life insurance protections at discounted rates compared to privately purchased policies as employers can get preferred rates
  • In addition to lower premium rates, they are policies providing a guaranteed issue which means that no medical exam will be required or no proof of insurability will be needed 
  • They may be offered as additional term coverage or optional whole life coverage although the term coverage is more common 
  • The advantages are that the insured may benefit from multiple coverage options such as an amount as guaranteed issue and amounts purchased above subject to medical review and underwriting
  • They can also allow the insured to attach riders to the policy by adding a spouse or dependent, or an accidental death and dismemberment coverage 
Accelerated benefits 
Convertible insurance 
Coverage portability 
Economies of scale 
Equity funds 
Group life insurance 
Insurance benefits 
Insurance portability 
Life insurance policy 
Medical exam 
Supplemental life insurance 
Waiver of premium 
Whole life policy
Accidental death and dismemberment insurance (AD&D)
Business insurance
Commercial general liability 
Cost of living rider
Disability income
Insurance riders 
Life insurance
Professional insurance 
Property insurance
Spouse rider
Standard term life insurance 
Term life insurance


Please enter your comment!
Please enter your name here