Voluntary life insurance is a type of life insurance policy that is offered through the workplace. Like all other types of life insurance, voluntary life insurance pays out a certain amount of money to your beneficiaries upon your death. It can be extremely valuable to you as it allows you to leave a financial gift for your loved ones if you are no longer around to take care of them. That’s why it is so important for you to read this entire post.
What is Voluntary Life Insurance?
Voluntary life insurance is a type of life insurance policy that is offered through the workplace. It is different from traditional life insurance in several ways: Traditional Life Insurance – The only way you can get traditional life insurance is if you qualify as an absolute (total) financial disaster. In other words, if you have no money or if you are barely hanging on by a thread financially. If this is the case, your employer will almost certainly insist you purchase traditional life insurance.
How does Voluntary Life Insurance Work?
The employer may pay the entire premium and then send a check or money order for you to sign and return to them. This will cause your name to be removed from the policy. However, if you die while your name is on the policy, your beneficiary will receive the death benefit.
Another option is that the employer may send you each month and you may choose to pay the entire premium. In this case, your name will remain on the policy… but… your employer will make monthly payments to the insurance company for you. Whichever arrangement your employer chooses to use, the result is the same: You no longer have to hassle with saving up money to pay the premiums.
What are the types of Voluntary Life Insurance?
There are two primary types:
- Voluntary Whole Life Insurance
The most common type of voluntary life insurance. It offers higher protection for a higher cost. This type of voluntary life insurance pays out a certain amount of money to your beneficiaries (usually your loved ones) upon your death. The amount of the death benefit will be based on several factors: Your age at death, the amount of premium paid, the years you have worked at your current job and other factors. The money used to pay for this type of voluntary life insurance comes from the employer. Therefore, it is tax-deductible for the employer… but… not for you. That means you won’t get a tax break… even though… your premiums are probably not even taxable to you.
This policy usually has a much higher initial premium than voluntary term life insurance. It has to pay for an additional amount of insurance to protect your loved ones against a much greater risk. It has to pay for an extended period of insurance (usually 10 or 20 years) after you die. It has to pay a much higher annual cost for a much greater period of time. In other words, it has to pay for extra time before your beneficiaries receive any money.
Another advantage of voluntary whole life insurance is it usually continues paying premiums for as long as you are employed by that particular company. However, it may terminate earlier if your employer decides to cancel your health insurance… or… if they decide to switch to group term life insurance. In this case, if your policy has an early termination provision… then… your policy will automatically convert to group term life insurance at the earliest possible date. One disadvantage of voluntary whole life insurance is it usually has a much higher initial premium than other types of voluntary life insurance.
- Voluntary Term Life Insurance
Also known as Level Term Life Insurance, this type of voluntary life insurance only pays out a certain amount if you die within a certain period of time. The advantage of this type of voluntary life insurance is it usually has a much lower premium than voluntary whole life insurance. However, it has the disadvantage of not providing a death benefit if you survive the term for which you have paid the premiums. The choice is up to you.
How Much Does It Cost To Buy A Voluntary Life Insurance Policy?
The cost of a voluntary life insurance policy will vary depending on several factors: Your age when you apply for the policy, the face amount of the policy, the years you have worked at your current job and other factors. However, one important consideration… is… how long you plan to keep the policy. If you decide to keep the policy beyond the initial term… then… the annual cost of the policy will go up. This is because… the insurance company has to pay for an extra year of insurance coverage. Usually, they charge more for this extra year of coverage than they do for the initial year of insurance. Therefore, if you decide to keep the policy for a long time (years 2, 3, 4 or 5. the cost of the policy will be much higher than if you only kept it for the first year.
What should you do if you are insured under both types of Voluntary Life Insurance?
The simplest thing to do is to keep paying the premiums for the type of life insurance your employer is paying for. You may want to call your employer’s benefits office and ask them what their thoughts are on this subject. If they are like most employers… they won’t have a clue. They won’t even know it is an option. This will probably be another “management decision” that gets made without any input from the employees. That is too bad because this issue affects all employees… not just the ones who are insured under both types of life insurance. In fact, many employers now have a “management decision tree” to help them make important business decisions. If this issue was added to the tree, it would definitely cause the branch to turn into a fork… and then… the next decision would be… which direction to go.
Here is a suggestion if you work for a small employer: Find out if they have any group life insurance available to you. Many small employers have “mini-group” policies which may cover only a few employees. If this is the case, you may be able to get together with some of your co-workers and sign up for a joint policy. This way, you will all have the same type of life insurance… and… you can share in the cost. Of course, you will all have to pay the same amount for the insurance… but… since you are sharing the cost… each of you will have an “ad valorem” deduction (it’s a tax term) when you file your taxes.