What is voluntary life insurance, and is it something you need? This optional life insurance benefit, which may also be referred to as supplemental life insurance, is generally offered through an employer in addition to the basic life insurance policy that is often provided as an employment benefit.

Here's what you need to know about voluntary life insurance in order to decide if this supplemental coverage is right for you.

What Is Voluntary Life Insurance?

If your employer offers voluntary life insurance, this benefit gives employees access to additional life insurance coverage that goes above and beyond a basic employer-sponsored life insurance policy. In most cases, voluntary life insurance coverage costs less than purchasing the same coverage on your own; that's because employees can take advantage of the group rates the employer's plan provides.

Some voluntary life insurance may also offer "guaranteed issue." With a guaranteed issue life insurance policy, the insured individual does not have to pass a medical exam or underwriting to qualify for a policy up to a certain death benefit amount. With a guaranteed issue voluntary life insurance policy, someone who wouldn't otherwise qualify for a policy because of a health condition can access important coverage.

How Does Voluntary Life Insurance Work?

In most cases, voluntary life insurance is offered as additional term coverage, which means the policy will only last until the term expires. Most employer-sponsored voluntary life insurance will use payroll deduction to pay premiums, so you will not have to make a special effort to pay each month.

Voluntary life insurance policies typically provide multiple coverage options. Your employer may offer a guaranteed issue benefit amount but also allow you to access other coverage options that are not guaranteed issue above that amount. Although you will likely have to undergo some sort of medical review or underwriting for a coverage amount above the guaranteed issue, you may find that this is still a cheaper option than purchasing coverage on your own.

Additionally, some voluntary insurance policies allow you to attach riders, such as spousal and dependent life insurance or accidental death and dismemberment coverage. Adding these to your policy will increase your premium, but they can help you access important insurance coverage for less than you would pay individually.

Since voluntary life insurance is generally sold through your employer plan, most policies are not portable — which means you cannot take the policy with you if you terminate your employment with the sponsoring employer.

Who Benefits Most From Voluntary Life Insurance?

Voluntary life insurance will be most beneficial for workers who might struggle to qualify for life insurance on their own and who plan to stay at their current workplace long term. Younger insurance shoppers who enjoy good health may find that it makes more sense to purchase a policy on their own, since a voluntary policy will generally not be portable.

A voluntary insurance policy will also make more sense for someone who simply wants to provide a death benefit for their loved ones than for someone who wants to use life insurance as part of their retirement planning. Since the vast majority of voluntary policies are term life insurance and do not offer a cash value, accelerated death benefit rider or other perks of whole life insurance, they are less likely to be part of the insured individual's retirement plan.

The Bottom Line

These kinds of policies are often guaranteed issue up to a certain death benefit, making it possible for individuals with health problems to fortify their life insurance coverage. However, voluntary life insurance is rarely portable, meaning you will lose this coverage upon terminating your employment. It is also harder to incorporate voluntary life insurance into your retirement planning, as it is usually term insurance and does not offer the kinds of retirement-income boosting perks available with whole life insurance.

For the right employees, voluntary life insurance can be an inexpensive way to supplement the basic life insurance policy offered by your employer.