What Is Voluntary Employee Life Insurance?

Voluntary employee life insurance is an optional benefit that provides a death benefit to designated beneficiaries. It offers a layer of protection beyond any basic coverage an employer might provide.

Understanding Voluntary Life Insurance

Unlike basic group life insurance, which employers often provide at no cost, voluntary coverage is elected and paid for by the employee. It serves as supplemental protection, allowing individuals to customize their coverage.

Premiums for voluntary life insurance are typically paid through payroll deductions. Access to group rates through an employer is generally more affordable than purchasing an individual policy. This cost-effectiveness stems from the insurer spreading risk across a large group of employees. Premiums paid by employees are typically made with after-tax dollars, and any death benefits paid to beneficiaries are generally tax-free.

Key Policy Features

Employees can typically choose their coverage amount, often in multiples of their annual salary, such as one, two, or three times their income, or in fixed increments like $10,000 or $50,000. For higher coverage amounts, insurers may require “evidence of insurability,” which can involve answering health questions or undergoing a medical examination.

Beneficiary designation allows employees to name individuals or entities to receive the death benefit. Keep beneficiary information updated to ensure funds are distributed according to current wishes, avoiding probate complications. Many policies also offer “portability,” meaning employees can continue their coverage if they leave the company. While portable, premium rates for continued coverage might change, becoming higher as they transition from group to individual rates.

“Guaranteed issue” is a feature, particularly during initial enrollment periods. This means employees can obtain a certain level of coverage without a medical exam or extensive health questions. This can be beneficial for individuals with pre-existing health conditions who might otherwise find it challenging or expensive to secure coverage. The guaranteed issue limit is typically a specific dollar amount, and coverage elected above this limit usually requires medical underwriting.

Enrolling in Coverage

Employees can generally enroll when first hired, during the company’s annual open enrollment period, or after a qualifying life event. Initial eligibility periods for new hires often allow for enrollment shortly after starting employment, sometimes within 30 to 90 days. Annual open enrollment provides an opportunity for existing employees to enroll, make changes to their coverage, or adjust their benefit amounts.

Qualifying life events include personal changes such as marriage, divorce, the birth or adoption of a child, or loss of other insurance coverage. The application process usually involves completing a form where employees select their desired coverage amount and designate beneficiaries. Premiums are managed through automatic payroll deductions. Employees can make changes to their policy during subsequent open enrollment periods or in response to new qualifying life events.