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Voluntary Life Insurance
In recent times, we have assessed various types of life insurance, riders, policies, and the companies that sell them. However, there is one that we haven’t yet discussed - voluntary life insurance.
Often, this topic brings about confusion so it is time to address the common questions once and for all and take a detailed look into what it means. Furthermore, we will assess the key differences to a standard term or permanent life insurance policy.
What is Voluntary Life Insurance?
Voluntary life insurance definition: an optional life insurance policy offered by your employer for the benefit of you, the employee and your chosen beneficiary or beneficiaries. The policy has a death benefit that will go to your beneficiary if you were to die in exchange for a monthly premium payment paid by you.
As per a standard group life insurance policy, premiums are paid each and every month and these payments will come from you as the employee. If you own a business, it might be your own employees who are being offered this policy.
In addition to this, the premiums are decided taking into account various factors including age and the size of the coverage.
Typically, the premiums will be cheaper than standard insurance because the whole company will enjoy an employee group discount. Since your employer has chosen the life insurance company for all of their insurance needs, in return they offer lower rates.
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With voluntary life insurance, there are various ‘additional benefits’ and the main one is a chance to prove your good health in order to purchase more coverage on your insurance.
Furthermore, portability is an important benefit for many because this means the policy won’t be affected if you were to change jobs. Sometimes, employees reject voluntary life insurance because they feel as though this ties them down to the employer but this isn't necessarily the case.
Additionally, there could also be an option to accelerate a certain percentage of the benefits if the policyholder becomes terminally ill. Although this might not be something you want to think about right now, it is important to note because it allows you to get your finances in order before you pass away.
Finally, we should also mention that some companies allow you to add family members to the policy. For example, you might want to add your partner, child, or any other dependents you might have.
Additional Voluntary Life Insurance Policy Types
So now we have the basics covered, we can look into the two different types of policy you may come across. While some employers choose to provide term life policies for their workers, others may provide the opportunity to get a more permanent policy in the shape of whole life.
Voluntary Term Life
With a voluntary term life insurance policy in place, your family will be protected for a specified period of time.
You will pay your monthly premiums and they only go towards keeping the policy alive because there is no cash value component to build up.
As per a normal term life policy, the beneficiary will receive the amount after you pass away.
Of the two types we have here today, term life is the cheaper option because it isn't permanent and because there is no cash value.
Voluntary Whole Life
In comparison, this is a permanent form of insurance and it will remain in place until the policyholder dies. Even if the policy is designed so that premiums stop at a certain age, the death benefit will remain in place.
Furthermore, you will also have a cash value that builds over time and can be used as a loan during retirement which can actually decrease the burden a little. Not only that, it also improves your liquidity should something go wrong in the future and you need to access your cash value for a loan or withdrawal.
Whenever this topic arises, there are some questions that reveal themselves time and time again and you can’t blame anyone because it can be a tricky industry. Above all else, people tend to ask how this voluntary option differs from a regular life insurance policy. As we have already seen, the biggest difference is that it comes through your employer rather than doing it all yourself. As a result, the premiums are often lower and this is the first advantage for voluntary when comparing the two.
In addition to this, we should point out that all the details will be handled on your behalf. For example, you don’t have to work out how much coverage you need to cover the mortgage, debts, funeral expenses, etc. Instead, the insurance company will normally provide options using multiples of your salary. If we say that your salary was $30,000, you would probably get offered coverage in increments of this size. If this was the case, you could get 30, 60, 90, and possibly 120 thousand in coverage.
Do You Need More Life Insurance?
Since this is only insurance with your employer, you might find that the death benefit is not enough for your needs but this is where your traditional insurance comes in. If you already have an amount of insurance in place, voluntary life insurance could be a way to supplement this for an affordable price and without having to worry about all the finer details of the agreement.
Portability - As something we saw earlier, we highly recommend that you have portability within your life insurance policy. If you do not have this option, the policy will not move with you when you decide to leave your role within the company. Rather than forgoing the policy completely and wasting all the premiums you have made so far, you will probably want to convert your policy to a different employer or to a standalone option - be aware, this could be an expensive process. If you plan on staying at your current company for a signifiant amount of time, voluntary life insurance becomes worthwhile. However, you should still check for portability before you sign the contract.
Premiums - Although you will still be paying the premiums as you would with a policy of your own, they will come out of your pay check directly with a voluntary policy and this is something that many people like. Rather than having to remember to pay your premium or even making the payment online, you won’t even know that the money is gone. After a while, you forget about this money and grow accustomed to living on a slightly smaller budget and it is all done for you. When you have to pay it manually, you start to think about all the things you could be doing with the money which is where you start to despise life insurance despite the peace of mind it is offering.
On the flip side to this, you could say that some of your billing freedom is removed. With some policies on the market today, you can pay once, twice, or even four times a year rather than monthly. With a voluntary life insurance policy, you have to pay monthly regardless of what happens.
Overall, there are some great advantages to buying voluntary life insurance but there are also some disadvantages. With this in mind, you should sit down with your employer and find out exactly what they are offering. Is it a term life or whole life policy? What is the maximum coverage you can choose? Will the policy be portable if you were to move jobs? As long as you have these questions answered as well as many others, you can assess your needs to see whether it would be worthwhile.
If you have recently joined a company, voluntary life insurance can be a great idea. Not only will it be more affordable, you don’t always have to provide health information which is great news if you suffer from certain medical conditions. As long as you have your needs as the priority, you will make the right decision - sometimes, rejecting the coverage is the right decision so bear this in mind. Of course, we don’t advocate having no life insurance but you may not want a voluntary policy if you already have your personal policy in place!