Voluntary life insurance is an optional benefit offered to employees, which will pay out a cash benefit to predetermined recipients (known as beneficiaries) upon the event of the employee’s death. Unlike life insurance policies taken out directly with an insurance company, voluntary life insurance is traditionally cheaper.
This guide will cover the following topics:
Voluntary life insurance is an optional benefit offered to employees when they join a company or as part of their yearly selection of company benefits. It might be provided immediately upon hiring or shortly afterward.
The employee pays the monthly premium, which often takes the form of a payroll deduction. In return, employees’ beneficiaries (it can be anyone: their children, spouse, close family members, etc.) will receive a death benefit in the event of the employee’s death.
Voluntary life insurance is traditionally cheaper than standard retail life insurance policies, as the company can leverage a cheaper premium through the negotiating power of multiple employees.
Voluntary life insurance is paid via a monthly premium usually arranged via salary deduction from the employee’s usual pay packet. Policies are traditionally valid for a specific term and end when you leave your job. In addition, whole life insurance policies are also available. However, premiums here will likely be higher than the fixed-term alternative.
Voluntary life insurance usually comes with additional benefits or riders you can opt for, which enhance the terms of your basic life insurance policy.
Optional benefits might include:
The two main types of life insurance for an employee are voluntary term life insurance and voluntary whole life insurance. Let’s get to know more about them.
Voluntary term life insurance is a life insurance policy that will provide a death benefit to your beneficiaries only for a set amount of years — usually five, ten, or fifteen. It’s more common than whole life, as most employees will only work for a fixed time.
Voluntary term life insurance plans are usually cheaper than whole life insurance plans, as they don’t allow for variable investing or build-up in value.
You might select voluntary term life insurance as a supplement to your personal life insurance policy. This could be useful, for example, if you have children and wish to offer them enhanced coverage in the event of your death.
Policies that can be transferred to a personal life insurance policy after leaving the employer are whole life insurance policies. They are designed to cover you for life. Your spouse or dependents may also be covered for an additional fee if you select additional policies for them as a supplement to your own.
These plans are cheaper than buying a whole new policy for your spouse or children, but they will likely have limited coverage compared to other forms of life insurance. They are usually riders to the employee’s voluntary life insurance policy.
Voluntary spouse life insurance provides a cash payout to a spousal beneficiary in the event of the insured’s death. As with the employee’s own life insurance policy, it may be transferred to a personal policy after the employee leaves. It’s available in two forms: term and whole life policies.
Voluntary child life insurance is life insurance for the employee’s children. It means that the insured will receive a cash payout in the event of the child’s death. Note that premiums will likely be higher the older the child is. The child’s life insurance can be either whole life or term life insurance.
It’s a useful policy for your dependents. However, check out the policy terms before making a decision.
Dependent life insurance has different maximum coverage limits for children and spouses. Additionally, the age of the dependent will impact the cost of the premium. Payouts for voluntary dependent life insurance are usually smaller and subject to the same limitations as the employee’s insurance.
Voluntary life insurance is a great way to help your loved ones financially in the event of an unexpected death. Here are a few questions to help you understand how useful it is and whether you need it:
If you have a pre-existing condition or dangerous hobby, getting a traditional life insurance policy might be very expensive or impossible. Voluntary life insurance policies offer significantly lower rates and don’t require medical information. This makes them more cost-effective than a standard life insurance policy. However, you should always check the terms of your policy to see what is covered.
Voluntary life insurance will pay out to your beneficiaries in the event of death for any reason: accidental or natural. On the other hand, AD&D policies only cover accidental death and injuries resulting from an accident. You can get both covered under a voluntary life insurance policy or obtain either of the policies through your place of work.
Accidental death and dismemberment cover is a payout to your beneficiaries in the event of the loss of your life or limbs. It covers car accidents, equipment accidents, falls, homicides, drowning, etc. Refer to your policy terms to find out what accidents are covered.
Accidental death is not paid out if death is caused by:
While accidental death results in a full payout to beneficiaries, dismemberment pays out only a portion of the full payout, depending on the severity of the condition. Dismemberment can refer to a loss of a limb, sight, or hearing with full or partial paralysis.
If you’re not sure which policy to go for, voluntary life insurance or AD&D coverage, consider the following points:
Voluntary life insurance is an excellent supplement to an existing policy. It’s suitable for individuals with long-term conditions that might make obtaining their own life insurance policy difficult. Remember that voluntary term policies through an employer are cheaper. However, they’re not always transferable to a personal policy when you leave the company.
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