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What Is Voluntary Life Insurance? A quick Guide

Employers often offer various fringe benefits to employees during the onboarding process. One of the most common is voluntary life insurance. Voluntary life insurance can act as a supplement to existing basic life coverage. Including this benefit as part of the package can help improve employee retention and overall company culture.

Life insurance

Life insurance is an agreement between the policyholder and the insurer. The policyholder pays a premium in exchange for a cash benefit that is cashed out by a designated beneficiary upon the insured’s death. In other words, when the person that is insured passes, someone of their choosing gets paid out a cash sum.

Voluntary life insurance is an optional benefit that employers offer to their employees to supplement an already existing employer-sponsored basic life insurance policy. A basic life insurance policy usually comes in the form of a term life insurance policy. Term life policies have fixed benefit amounts usually between $50,000 -$100,000. The beneficiary receives that set amount when the employee dies during the term of the coverage.

What’s the difference?

Although basic life policies are beneficial, they often do not offer enough benefits to truly cover an employee’s family’s needs if they were to pass. In these cases, employers can also offer voluntary life policies to give the employees a chance to supplement the employer-sponsored policies. Employers can obtain lower premium rates by grouping employees together into the same plan.

Voluntary life policies offer the employee a chance to obtain basic additional coverage without having to shop around. Additionally, some voluntary life options allow the employees to take the policy with them once they leave. Whereas a basic policy does not offer that option.

Moreover, if employers choose to offer voluntary life policies, they can offer more than just another term life policy. Some employers offer permanent life policies as a voluntary life option. Permanent life policies are different than term policies in that, term policies last a set number of years, i.e. 10, 15, 20, etc. permanent life policies can cover an individual for the duration of their life and even build cash value over time.

The bottom line is that by offering employees an additional voluntary life policy on top of an employer-sponsored basic policy, employees get the option to expand that benefit to better tailor their needs.

Offering benefits is one way to make your company more competitive for job seekers. Moreover, it can help you increase the quality of potential candidates that apply to your open positions. It may also help with overall employee satisfaction and wellness.

Learn more about how Payroll Systems can seamlessly integrate benefits into its payroll service to help you empower your workforce.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.