Voluntary life insurance

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Life insurance is generally considered to be the bedrock of any comprehensive financial plan. But those who have medical conditions that prevent them from getting coverage are often left between a rock and a hard place. Fortunately, many employers offer their employees a benefit that allows them to get around this obstacle. Voluntary life insurance can be a godsend for employees with serious health conditions, such as heart trouble, cancer, type 1 diabetes or HIV.

What is voluntary life insurance?

Voluntary life insurance is a special form of group life insurance that is offered by an employer to its employees. The employee usually has the monthly cost of the premiums deducted from his or her paycheck, and the employee’s family or other beneficiaries will receive a death benefit if and/or when the employee dies. Voluntary life insurance is an important benefit because there is no medical underwriting required up to a certain amount of death benefit. And because this is a group program, the premiums for voluntary life insurance are usually slightly less than those for an individual term policy. Employees also often have the option of buying additional coverage for their spouses, domestic partners and/or children.

The specific terms of these policies will vary somewhat from one voluntary life insurance program to another, and the terms generally depend upon what the employer is able to negotiate with the life insurance carrier. Some voluntary life insurance policies are also portable, which means that employees can keep the coverage if they leave their employer. This can be a critical benefit for those who cannot medically qualify for other forms of private coverage.

Voluntary life insurance differs from traditional standalone term life insurance because there is no medical underwriting required to qualify for it. All employees of an employer who offers a voluntary life insurance program are automatically eligible to participate in the plan, regardless of their medical condition or health problems. New employees are usually either immediately able to obtain this form of coverage or else will become eligible soon after their start date. Those who initially choose not to carry this coverage will usually get another chance to sign up during the annual enrollment period or after certain life events, such as marriage, divorce or the birth or adoption of a child.

Who needs voluntary life insurance?

Anyone who cannot medically qualify for standalone life insurance coverage can benefit greatly from a voluntary life insurance plan. In many cases, this will be the only form of coverage that they can qualify for at an affordable rate. There are other types of guaranteed issue life insurance available in the marketplace today, but they are usually very expensive.

Voluntary life insurance can also be useful for someone who already has a standalone life insurance policy but still needs more coverage. For example, someone who qualified to buy a $100,000 indexed universal life policy before their health problems began can supplement this death benefit coverage by participating in their employer’s voluntary life insurance program. They could get another $250,000 of coverage this way for a reasonable cost and would then be carrying adequate life insurance.

Types of voluntary life insurance

There are two basic types of voluntary life insurance: term and whole life. The right type of insurance for a given employee depends upon their financial situation and need for death benefit coverage.

Voluntary term life

Voluntary term life stays in effect for the duration of a specific period of time, such as one, five or 10 years. The cost of the premiums that are paid usually increases every five years or when the term expires and the employee has to renew his or her coverage. But the first $50,000 of death benefit is often paid by the employer.

Voluntary whole life

Voluntary whole life is more expensive and also builds up a tax-free cash value over time that the employee can access to pay for any type of expense that arises, such as medical bills or college tuition. But the premiums will never increase and this type of coverage is always portable. Employees who opt for voluntary term life usually have the option of converting their term coverage into a smaller amount of permanent coverage that they can keep for the rest of their lives, regardless of whether they stay with their current employer or not.

How to get voluntary life insurance

In order to obtain voluntary life insurance, you must first be employed by a company that offers this benefit. You cannot obtain this type of life insurance in the private marketplace.

Enrollment

If your employer does offer this benefit, then you can enroll in this program as soon as you are hired or soon thereafter, such as after a period of 90 days. You will need to fill out some paperwork and submit it to your human resources department, but after that you should be good to go. You will also most likely need to fill out separate paperwork for any additional family member or person in your household that you want coverage for. If you want more than a $50,000 death benefit, you’ll have to pay for the cost of the excess premiums via payroll deduction. This is also the time to decide whether or not you want additional riders on your policy such as for waiver of premium or AD&D.

Portability

If you leave your employer, your voluntary life coverage may be portable, depending upon the terms of coverage that your employer offered. You may have the option of converting your term coverage into a smaller amount of paid-up permanent coverage that you can keep regardless of where you work.

Frequently asked questions

What is the best life insurance company?

There is no one best life insurance company when it comes to voluntary life insurance programs. The terms of each program can differ depending upon several factors, such as the type of deal that the employer agrees to with the life insurance company. Some companies are able to offer cheaper plans than others, but they may also have fewer additional options to choose from.

How much coverage should I get from this type of plan?

The answer to this will depend upon the amount of coverage that you need to protect yourself and your loved ones. In many cases, you will need more than the first $50,000 of death benefit coverage that your employer provides to you for free. If you need more coverage than the maximum amount allowed without underwriting, then you’ll have to either take a medical exam or complete a health questionnaire in order to qualify for additional coverage. This may result in higher premiums or even denial of coverage, depending upon your health.

How can I find out if my life insurance is portable?

Your employer can tell you whether you have the option to take your life insurance policy with you after you leave. If you opt for whole life coverage, then your policy will definitely be portable, but you can only take your term coverage with you if your employer permits you to do so. You can contact your HR department if you have any further questions about this.