Is your employer offering group life insurance? Like buying all sorts of insurance, you might be skeptical when it comes to whether it’s genuinely worth purchasing or if it will simply be a waste of money each cycle. Life insurance can be a difficult type of insurance to consider purchasing while planning your retirement.
Here is what you need to know about voluntary life insurance (AKA group life insurance) so that you can make the most out of this benefit.
What is voluntary life insurance?
Voluntary life insurance is a type of insurance coverage that you can opt into if you are an employee of a business that offers it. It is life insurance provided by your employer, but unlike basic life insurance, voluntary life insurance is optional, not required life insurance.
You will need to pay scheduled premiums for voluntary life insurance if you do decide to opt into it. However, the expenses are generally quite low. They are deducted from the employee’s payroll.
In case of death, if you have voluntary life insurance, your beneficiaries would receive the death benefits (which is generally a lump sum amount of cash). Your beneficiaries would get to decide how to spend this money.
The three main components of a voluntary life insurance policy are:
- The premium: How much you need to pay for the policy each billing cycle. In this case, it would be how much gets deducted from your payroll.
- The death benefit: This is the guaranteed payout your beneficiaries would receive in case of your death
- The cash value: If you have a whole life insurance plan, you may be able to accrue cash value by having a tax-free savings account with the policy.
What are the different types of voluntary life insurance?
To understand how to take full advantage of voluntary life insurance, it’s important to first know the difference between term life insurance and whole life insurance and other options you might have.
- Voluntary term life insurance: This kind of life insurance would last a specified amount of time, not your entire life. The policy might last for ten years, 20 years, or 30 years. There is no cash value to be accrued, though it is cheaper than whole-life insurance.
- Voluntary whole life insurance: This will essentially protect you for your entire life. It can give you cash value as well. It uses a tax-free savings account to help you accrue value in the long term.
- Voluntary accidental death and dismemberment (AD&D): This kind of voluntary insurance specifically covers accidental deaths (e.g. an accidental, lethal fall) and dismemberment. If this is something you’re worried about, you may want to see if your employer offers this kind of coverage on top of the typical voluntary group life insurance policy.
Read on to learn more about which kind of voluntary life insurance might provide you with the most benefits.
What re the benefits of voluntary life insurance?
When choosing whether you want voluntary life insurance, you want to be making an informed decision. Here are some advantages of having voluntary life insurance.
Voluntary life insurance offers the benefit of guaranteed payment
Guaranteed payment on death is important because it gives your beneficiaries proper financial assistance and gives you peace of mind. Voluntary life insurance is considered guaranteed issue insurance, which means that there are generally no medical exams required for you to be eligible for voluntary life insurance. This way, you and your loved ones shouldn’t have to worry about whether the death benefits will be paid out properly if you do buy coverage.
You may not have to worry even if you no longer work at this place of employment
You can usually still keep your voluntary life insurance even if you don’t work at the company that initially offered it. This is called a portable voluntary life insurance policy.
However, certain voluntary life insurance policies actually detail that they will end as soon as you leave your job. In this case, the policy is not portable, and depending on your career and employer, you may want to be more wary of the insurance policy.
How can you make the most out of your voluntary life insurance
There are certain strategies that you might be able to leverage to make the most out of your voluntary life insurance.
It’s important to note that a professional, such as a financial advisor, tax consultant, physician, attorney, or other expert, can help you make the decision on whether you should get voluntary life insurance. This article is meant to provide a useful overview and does not serve as official advice.
1. Consider voluntary life insurance if you are worried about your health status
People with pre-existing health conditions might be concerned about the premium cost of individual life insurance. As long as you know how much coverage you are getting and that it is enough coverage to fit your lifestyle and needs, it might be worth signing up for voluntary life insurance, which doesn’t typically require a medical exam to evaluate your pre-existing health.
2. Accelerate the benefits if you need them earlier
Voluntary life insurance can be very helpful if you find yourself terminally ill. It generally provides you with the option to accelerate the death benefits so that your beneficiaries can receive them earlier once you have been diagnosed.
3. Ensure that you have adequate life insurance coverage
For some people, it may be more advisable to consider voluntary life insurance as a form of supplementary coverage to their other individual life insurance policy.
Before you sign up for voluntary life insurance, make sure that the policies you are holding are enough to cover all of your life insurance needs. Some policies might be exceptions and not follow you if you leave your current place of employment.
4. Assess your health and job risks
Some careers are riskier than others, and some individuals have a higher risk of health problems than others.
When retirement or estate planning, it’s typically wise to assess your personal circumstances. If you feel like your risk levels are higher, you might feel like voluntary life insurance becomes more necessary so that you can protect your loved ones after your passing. If you feel like your risks are rather high and you are older, you might want to consider a term life insurance plan as opposed to a whole life insurance plan.
5. Reconsider your guaranteed payment amount if you are worried about taxes
It’s crucial to be aware of your voluntary life insurance’s payout maximum limit – this is the most lump sum cash that your beneficiaries would receive in case of your passing.
The guaranteed payment usually won’t be taxable, unless it is more than $50,000. Suppose you’re concerned about the taxation of this payment. In that case, you may want to seek counsel from a tax advisor or other relevant professional to see if you’re choosing the right voluntary life insurance for your needs.
What are the potential disadvantages of voluntary life insurance?
You might encounter certain challenges that come with having voluntary life insurance. Here are some of the common drawbacks that might make you reconsider opting into buying voluntary life insurance.
1. The insurance company might reject your coverage
Even though having a pre-existing health condition generally shouldn’t disqualify you from having voluntary life insurance, insurers still might make you ultimately get a medical exam in the end.
If you’re signing up for voluntary life insurance with your company, be prepared for the life insurance company to ask you to provide personal information and forms that might allude to certain health predispositions or pre-existing conditions.
2. Voluntary life insurance is standardized
If you and/or your loved ones have special challenges, health conditions, or needs, you might want some more individualized or specialized kind of life insurance.
Because voluntary life insurance is something that insurers will offer to numerous companies, and each company will offer this coverage to its eligible workers, voluntary life insurance policies are usually completely standardized.
You won’t find any extra or comprehensive coverage when it comes to them: they are simply easy to sign up for and guarantee payment of death benefits. If that sounds like exactly what you need, then this won’t be a disadvantage.
3. You need to be eligible for voluntary life insurance coverage
Not every employee or volunteer can be eligible for being offered a company’s voluntary life insurance. Eligibility may depend on how many hours you have worked or whether you are a full-time employee with the company.
4. Some voluntary life insurance plans are not portable
Always check your company’s policy to see whether it’s portable. If it’s not, that means you won’t be covered by the insurance policy if you stop working under this particular employer.
If you feel like you might be changing jobs (and realistically, many Americans change their jobs over the course of their lives), you may want to instead buy individual life insurance. This way, you would have more control over your life insurance benefits, premiums, and more.
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