In reality, all life insurance is voluntary; nobody forces you to care about the future of your loved ones. As a mother, father, child, spouse, or domestic partner, we all have concern for the people close to us. The matter of voluntary life insurance may be a bit puzzling. The bottom line is, this type of insurance is voluntary as far as your choice to participate in a group life insurance policy.
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What Is Voluntary Life Insurance?
Unlike with health insurance, employers are not required to offer life insurance to their employees. Voluntary life insurance is an employee benefit paid for either by an employer entirely or by premiums being deducted from your paychecks. Even if you pay a premium from your salary, these policies are still less expensive than an individual life insurance policy and are a great perk to any job.
Commonly called group life insurance, voluntary life insurance covers unrelated people who are members of the same group. If a member of the group passes away, the policy pays out the benefit amount to the beneficiaries. Though most often seen in business-related groups, voluntary life insurance covers other groups that fall within certain guidelines.
To qualify for group insurance, the sole intention of the group cannot be to purchase life insurance, such as a group of friends or family members. Eligible groups include employer/employee groups, labor union groups, association groups, and multiple employer trusts.
The most everyday type of group life insurance is purchased by employers for the benefit of their employees. Although permanent group life insurance policies are available, most employers use a form of annually renewable term life insurance. The National Association of Insurance Commissioners (NAIC) created the model for group term life insurance followed by most states.
Requirements set by the NAIC for group term life insurance include:
- The group must cover at least 10 people under the master policy.
- Insurance must be bought for the welfare of the employees, and employers can’t be beneficiaries.
- The master policy goes to the employer, and employees receive a certificate of insurance.
- Medical exams are generally not obligatory, and premiums are based on the group, not the individual.
Characteristics of Voluntary Group Life Insurance
Group life insurance plans can be funded entirely by the employer (or a sponsor that holds the master policy), or premiums may be split between participants and the employer. If the policy is funded completely by the employer, it is called a noncontributory plan. When an employee pays a part of the premium, it is a contributory plan.
Employer group life insurance plans are most commonly noncontributory and are called basic group life insurance policies. With this type of group policy, 100 percent of eligible employees must be covered. Contributory group life insurance policies are voluntary—employees are not required to participate. Typically, the required participation of the group for contributory plans is 75 percent.
Group life insurance policies have standard provisions. These provisions include a grace period for paying premiums after the due date, conditions in which the insurer may ask for evidence of insurability, incontestability after two years, the right for policyholders to choose their beneficiaries, and the right for policyholders to convert the policy to an individual policy without evidence of insurability.
After you leave your job, group life insurance coverage usually ends. If you are uninsurable by the time you leave your job, it would be impossible to qualify for an individual life policy. A group life insurance plan‘s conversion provision allows policyholders to convert their group coverage to individual coverage with an equal death benefit and without evidence of insurability.
The standard conversion provision allows the policy to be converted to a whole life insurance policy. When insurers allow you to convert your policy to a term policy, often called “porting,” your policy is a portability policy. Porting or converting your policy must be requested within 31 days of leaving your job. During the 31 days, your group life insurance policy is still in effect.
Since group life insurance covers a minimum of 10 people, underwriting focuses on the entire group, not the individual. Group rates rely on a combination of healthy participants and those who might be uninsurable. This explains why minimum participation is required. The law of large numbers shows the larger the group, the easier it is to predict future losses.
What Does “Voluntary” Mean in Insurance?
“Voluntary” is defined as acting by your own choice. Employers are not required by law to offer life insurance policies to their employees, and employees are not required to participate. This makes the insurance coverage voluntary on both ends. However, a basic group life insurance policy funded entirely by the employer must cover all employees.
There are two types of voluntary life insurance policies employers can offer: voluntary term life insurance and voluntary whole life insurance. Both types have the characteristics of voluntary group life insurance, with unique qualities of their own.
Voluntary Term Life Insurance
All term insurance policies last for a period of time. Voluntary term life usually lasts as long as the participant is a member of the group. The policy ends when the term length is reached and must be renewed or canceled. It can cover you and your spouse as well as your children.
Voluntary term life insurance coverages usually come in multiples of your salary or increments of a base amount, such as $10,000. Premiums of these policies stay level during the term of the policy but may increase upon renewal. Because premiums are assigned to the group, they are usually less expensive than individual term life premiums. Voluntary term life premiums also cost less than voluntary whole life.
Voluntary Whole Life Insurance
Whole life insurance or permanent life insurance is any insurance product that lasts the insured’s lifetime. Policies are more expensive because they develop cash value at a minimum interest rate. Some permanent life insurance policies grow cash value in investment accounts, such as a universal life policy. Both whole and universal group policies can be offered by employers.
Voluntary whole life coverage can cover spouses and dependents. Premiums are less than individual whole life policies. Since whole life policies do not need to be renewed (unlike voluntary term life insurance), premiums stay level. When you are terminated, quit, or retire from your job, converting your group policy to an individual whole life policy may result in higher premiums.
What Is the Difference Between Basic Life and Voluntary Life Insurance?
Though all group life insurance policies are voluntary, basic life insurance or basic group life is a noncontributory plan where the holder of the master policy pays all the monthly premiums for the insureds. Voluntary life insurance here is any additional coverage purchased by the insured through a group policy.
Since both basic life and voluntary life are offered through group life insurance, premiums are typically lower than individual policies. This is because the experience is based on the group and the insurer has fewer administrative costs. Also, these policies do not require a medical exam, which is beneficial if you have a health condition or a medical history of illness.
Basic Life Insurance
The issue amount of a basic group life insurance policy is not chosen by the insured and is a guaranteed death benefit. Typically, it is the amount of your salary or multiples of your salary. Basic life is usually offered as annually renewable term insurance. It can only be canceled or renewed during the open enrollment, which is the policy anniversary or the end of the term.
If you are new to a company, enrollment begins when you have satisfied the company’s eligibility requirements or after a qualifying event, such as getting married or having a child. The company or sponsor of the basic life policy holds the master policy, and the insureds are given a certificate of insurance. Basic life insurance may also offer riders such as a waiver of premium for disability.
Voluntary Life Insurance
When your employer or group pays the insurance premiums on your basic life policy, any additional coverage that you purchase through the group is voluntary life insurance. You can have premiums deducted from your paychecks to increase the benefit amount of your policy. Or you can purchase supplemental insurance that your employer does not pay for, such as accidental death and dismemberment insurance.
Accidental death and dismemberment, or AD&D, insurance provides an added benefit amount should you die in an accident. The additional coverage typically doubles or triples the face value of the base policy. It also pays a benefit amount should you be partially or totally dismembered. You can enroll in AD&D insurance through your employer during the open enrollment or after a qualifying life event.
How Much Voluntary Life Insurance Do I Need?
If you believe the basic life insurance your employer provides is not enough to meet your future expenses or family’s need, the option to increase the benefit amount or add supplemental coverage without evidence of insurability is a great bonus. You could have a medical condition that other group members don’t and still receive the same life insurance benefits.
The amount of coverage you need is determined by your individual needs and possible future expenses. Consider your current and future income, your current and future expenses, and your financial objectives when determining how much coverage is the right amount for you. Also, if you have a medical condition, ask your life insurance company if they have added long-term care insurance or riders.
By using Insurify to compare life insurance quotes, you can save time and find the right policy that fits your budget. Simply answer a few questions (your information is encrypted and won’t get into the wrong hands), and Insurify will give you a list of quotes from the best life insurance companies. You’ll have the right policy in your hands in no time.
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FAQ: Voluntary Life Insurance
Should I get voluntary life insurance?
Voluntary life insurance is a great benefit that employers offer their employees. You may get a basic life policy that your employer pays for that covers all your needs or purchase more voluntary life insurance. The premiums are less expensive than individual policies because they are based on the life expectancy of the group as a whole. Also, a medical exam is not required.
If I lose my job, will I still have my life insurance policy?
If you lose your job, you usually have 31 days to either convert your policy to an individual whole life policy or convert it to an individual term life policy, which is called porting. Once you have converted your group policy to an individual policy, premiums may increase.
Do I have to pay out of pocket for voluntary life insurance?
If your employer does not shoulder the full amount of your voluntary life policy, premiums may be deducted from your paychecks.
Choosing to participate in a voluntary life insurance policy is a smart move. Premiums cost less than individual life insurance policies. You can purchase extra coverage that can be deducted right from your paycheck, no medical exam is required, and you can convert or port your policy to an individual policy without having to prove insurability. The benefits are great and should rarely be turned down.
With Insurify, you’ll be on the right path to having all of your life insurance needs covered. Insurify will generate a list of quotes from top-notch insurance companies so you can find the one that has the right policy and any other additional insurance coverage to fit your needs.
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