Voluntary Life and AD&D Insurance

Voluntary life insurance and accidental death and dismemberment (AD&D) policies are offered to employees as part of a company's benefits plan, and you can typically purchase coverage for yourself, your spouse or your children.

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If you're young and unable to qualify for good rates from an insurer, whether it's due to a preexisting medical condition or another issue, voluntary life insurance can be a great option. Policies are guaranteed issue up to a certain limit, so you won't have to take a medical exam to purchase coverage. However, voluntary insurance rates are typically higher than healthy people could qualify for elsewhere, and they increase with age, so we recommend getting an individual policy if possible.

What is voluntary life insurance?

Voluntary life insurance, also called supplemental life insurance or optional life insurance, is a type of group life insurance that is typically provided through your work. Employers generally offer two forms of group life insurance:

  • Basic group life insurance: A limited amount of core life insurance coverage is often provided to employees at no cost.
  • Voluntary employee life insurance: Employees can purchase additional group insurance for themselves, their spouses or their children through their employers in the form of voluntary insurance. The cost of coverage is deducted from employees’ paychecks by their employers.

Voluntary life insurance policies are sometimes referred to as EE life insurance, or eligible employee life insurance, because they can only be purchased through an employee benefits plan, which may restrict the pool of eligible workers. For example, you may only qualify if you work over 20 hours per week for your employer. You can only sign up for coverage through your work during the annual open enrollment, soon after being hired or soon after a qualifying life event, such as the birth of a child.

Employee coverage is offered either in increments of a round number, such as $10,000, or as multiples of your salary. If you want to purchase coverage for your spouse or children, the maximum amount of coverage will typically be lower.

Voluntary insurance is similar to individual life insurance policies, and you may be able to choose between term and permanent coverage, though many employers only offer term. Similar to individual policies, voluntary policies can be customized with optional riders, such as disability riders or critical illness riders, though many of these come at an additional cost.

The primary difference is that if your voluntary life insurance policy isn't portable, you may not be able to keep your coverage if you change employers or are no longer eligible according to your company.

Having the option of policy portability is important, as it allows you to convert to an individual policy within a certain period after leaving your company. You may choose not to do so, particularly if there are fees or you're able to qualify for a new policy elsewhere, but you'll have no optionality if portability isn't guaranteed.

Should you buy voluntary life insurance?

Whether you need to purchase voluntary life insurance is in part dependent on your financial needs, and you should consider it if you don't qualify for affordable individual life insurance rates due to your health, hobbies or family history. However, we recommend that you first try to get quotes for individual life insurance before purchasing voluntary insurance, as voluntary life insurance premiums are often higher and increase with age. Since rates are determined based on a group, those who are healthier-than-average pay higher rates than they would elsewhere, while less-healthy people pay better rates with voluntary insurance.

You can calculate what your voluntary life insurance premiums would be based upon the group rate table shared by your employer, which should be included with your benefits details. Each age group is assigned a cost per amount of coverage.

Say, for example, you’re a 31-year-old man who qualifies for a rate of $1.00 per $1,000 of coverage, and this rate increases by $0.50 every five years. Over 10 years, you would pay $1,250 for a $100,000 voluntary life insurance policy, or an average of $125 per year.

If you're purchasing voluntary insurance for your dependents as well, such as your spouse or children, you should be provided with a similar table to calculate their life insurance rates. Often, voluntary insurance for your kids is offered at a flat rate, no matter how many children you have.

Every voluntary life insurance plan comes with a guaranteed-issue amount, which is the amount of life insurance coverage you can purchase without answering health questions and having a medical exam. Since voluntary insurance is usually only the best option for employees who wouldn't get good rates elsewhere, you will likely face the same issues with the group insurer if you try to purchase more than the guaranteed-issue amount. The guaranteed-issue amount can range from below $100,000 to over $1 million, so you should ask your employer for more details if you're considering voluntary insurance.

You may also be required to provide evidence of insurability if you increase your level of coverage multiple times. Say you increased your voluntary coverage from $500,000 to $750,000 after the birth of one child in order to cover their college tuition. You may not be required to take a medical exam so long as this figure is below your guaranteed-issue amount. But if you had a second child and took the same action, you might have to provide the insurer with details on your health in order to increase your policy's value.

Voluntary term life insurance

Voluntary group term life insurance provides coverage on an annual basis, meaning each year you can choose to renew or cancel your life insurance, or for a specified period of time, such as 10 years. A policy can often cover just you or your spouse, but typically at least one parent needs to be covered in order for children to receive coverage. Premiums for voluntary term life insurance are determined based upon your age and will increase either annually or every five years, as you enter a new age bracket.

Some voluntary term policies will only allow you to convert to a particular whole or universal life insurance policy, if you want to maintain coverage, either after your term has ended or if you change employers. Though you won't have to go through a health assessment, the permanent policy will be more expensive since it builds cash value, and there may be a conversion fee.

We recommend you ask your benefits manager about any voluntary insurance fees beforehand, and carefully review this option before taking it. It may be the best choice if you still need coverage and can't get a better rate elsewhere, but you're likely to pay high premiums for the policy.

Voluntary permanent life insurance

It's less common for companies to offer employees voluntary permanent life insurance, such as whole or universal policies, but it is available through some benefits plans. Voluntary permanent policies have higher premiums than voluntary term policies, but rates are typically level for the life of the policy. In addition, the policies build cash value, and you won't have to convert to a different type of policy if you switch employers.

Given the higher cost, we recommend you compare coverage and rates for permanent life insurance policies from multiple insurers before purchasing coverage. And if you're uncertain as to whether you need permanent cash value life insurance, you should first consider purchasing term, since many term policies are convertible.

Voluntary AD&D insurance

Voluntary accidental death and dismemberment insurance, or voluntary AD&D insurance, is often offered by employers, similar to voluntary life insurance. In some cases, AD&D coverage is added to a voluntary life policy, or you can choose to add it as a rider if it's not offered as a standalone policy.

All eligible employees can purchase voluntary AD&D coverage during open enrollment or after a qualifying event occurs. These policies provide a payout to your beneficiaries if you die or receive a qualifying injury due to an accident, such as being hit by a car. Qualifying injuries often include the loss of a limb, loss of multiple digits or multiple limbs, whole or partial paralysis or the loss of sight in an eye.

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