Let’s look into voluntary coverage and how it can be an added benefit to your current term life insurance plan.
There’s a lot to think about when you get a new job. How will you commute to the new office? What is the best spot for lunch? Who will be your office best friend? You also have to take the time to review your company’s benefits. You’ll see everything from health insurance options to employee perks, like voluntary term life insurance.
As you do your research, you may have noticed your company also offers different types of life insurance plans. Usually, these are at little to no cost to you. While you might already have a term life plan from a private company, you may wonder if this would be beneficial for you as an add-on. Let’s do a deep dive to see if voluntary coverage is something you should elect, and how it can be complementary to your existing coverage.
What is voluntary term life insurance?
This is an optional term life insurance plan. Essentially, it’s a payout to loved ones if you die. HR usually offers it right after you get hired — or 60-90 days after — and it normally doesn’t require a medical exam.
While there are similarities to an individual term life policy, it’s typically less expensive because of group rates. Once the premium amount is determined, it can deduct automatically from your paycheck.
The best part? You can tailor it as a supplement to the protection you already have. It’s an extra cushion in case things go awry. To make things a bit more clear: Barb is married with two kids and has a $175,000 term life insurance plan. The life insurance advisor who looks over her financial portfolio suggests that Barb maintains at least $300,000 in life insurance while her children are minors. Barb remembers that her employer offers voluntary term life insurance with pretty reasonable premiums. Barb decides to get the coverage as an add-on to her existing plan until her children are older.
What are the different types of voluntary coverage?
There are two types of voluntary coverage:
Voluntary term life insurance comes in 5-, 10-, or 20-year increments. The enrollment period is usually on an annual basis around when you have to re-enroll in health insurance. Partners and children can also get coverage. Normally this plan is not portable, so you can’t take it to a new job.
Voluntary whole life insurance is coverage just like individual whole life insurance. The cash value accumulates according to your underlying investments like any traditional portfolio-based policy. Also, because it’s permanent coverage, it’s easier to move if you change employers. Though watch out, your monthly costs could skyrocket without the group discount.
What is the difference between an individual term policy and voluntary term life insurance?
And why might we want both voluntary and individual term life insurance? Well first, let’s take a look at the difference between the two (since we love bulleted lists of insurance lingo).
Individual Term life insurance
- Bought through a private company
- Coverage amount determines the premium cost
- You have to fill out a medical questionnaire and may need to get a physical
- Depending on your income level, you can buy as much coverage as you want — even millions of dollars
- Cash payout to beneficiaries can be fast
Voluntary term life insurance:
- Offered through your employer
- Low cost, due to the group rate
- No medical exam required
- The amount of coverage you can buy usually gets capped because of your salary
- It’s not always portable if you change jobs
Understand the Costs
If you get coverage through a private company, your monthly costs depend on your age and health. When you’re single and healthy, your premium is probably relatively low. If you have a spouse, kids, a house, and some cute pets, you can usually add more coverage to match your life changes. Voluntary coverage, however, might not be able to adapt to those changes because of the caps. On the other hand, it’s cheaper. So having voluntary coverage through work can be an additional, low-cost option.
While only having voluntary coverage might seem like the better option, there are cons to getting it first. You can only get it if your employer offers it, and many are stopping this benefit. Also, you have to buy your coverage from the life insurance company your employer selects. In addition, if you lose or leave your job it will generally lapse after a month.
If the policy is portable, it can be converted to an individual term or whole life policy. But you’ll have to pay the private insurance company directly, which usually means much higher costs. Not to mention you’ll lose the ease of paying from your paycheck directly.
But an individual policy ensures a basis for consistent protection regardless of where you’re working. This is why many see voluntary life insurance as a supplement. It’s a great partner to the individual plan you have.
Other company-offered plans
If you have more specific needs, there might be an option for you. These can supplement your existing term life insurance coverage, too.
Guaranteed life insurance will cover most people regardless of age and health. Watch out for limits on coverage amounts and high monthly premiums.
Accidental death & dismemberment is an added rider (or added benefit) to some insurance plans. It can cover the loss of limbs or bodily functions like sight or hearing.
Travel insurance may cover illness or other emergencies when traveling on behalf of your company.
Burial life insurance covers final expenses. Typically, this appeals to older people making end-of-life plans.
Should you buy voluntary term life insurance?
Despite its limitations, you should consider it. It can be a cost-effective option. Although, every employer’s conditions are different. Keep in mind that if you leave your job and have the option to take the plan with you, it can be at a higher cost.
An individual term plan is usually the best first step. It likely has benefits you won’t get through your employer-based coverage. However, we’re always of the opinion that having all the protection and help you can get is important. Voluntary coverage through work is low-cost and can complement an individual plan you already have. That means more money and benefits for your family.
