What’s Optional Life Insurance? Cost, Pros + Cons

Updated

Millions of American workers, just like yourself, rely on their employer’s group life insurance coverage for peace of mind and financial security. In fact, insurance experts report that about five percent of all active life insurance policies are employer-based group life plans. 

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One of the perks of employer life coverage is the ability to supplement it with life insurance for your spouse and children. In addition, employers often allow their workers to increase their individual coverage so long as the employee agrees to pay the extra premium. 

If you’ve been kicking around the idea of getting optional life insurance, then be sure to keep reading for more insights. We’ll take a closer look at optional life's pros and cons. 

What is Optional Life Insurance?

Most employers offer a modest term life plan that has a small face amount, normally $10,000. Term life insurance is meant to cover the insured for a set amount of time and doesn’t have any cash value that can be borrowed against or cashed out. If you keep working at your current company, then you should expect to maintain your group life insurance plan. 

Optional life insurance is enhanced coverage that can be purchased, by an employee, to juice up their employer’s basic life insurance benefits. Typically, the company you work for will pay the base premium for your life policy, while you pay the full cost of any optional coverage selected.  

The most common type of optional life insurance is life coverage for a spouse and/or children. In addition, some group life insurance plans will allow an employee to purchase an enhanced death benefit on their own term life coverage. 

Why do employers offer it?

Employer benefits, like optional life insurance, help the corporation and their team members. Below are a handful of reasons why employers provide their employees with benefits, including enhanced life coverage.

  • Attract and retain talent: Many people can’t get an affordable life policy for reasons that are beyond their control. The opportunity to add on life insurance benefits at a reasonable price (without a medical exam) is very appealing to job candidates. Tight job markets mean that employers need to find something that will attract and retain talent. 
  • Tax deductions: Employers can deduct up to $50,000 in group coverage premium. This special tax deduction is specific to the premiums the company pays towards their employee group life plan. 
  • Increase employee satisfaction: Employees work because they need financial security. Companies that provide their team members the ability to access high-quality benefits, like health insurance or life insurance, are helping their employees improve their overall financial outlook. 

What Does Optional Life Insurance Cover?

The best way to find out what optional life insurance will cover is to talk with your job’s human resources department. A human resource representative can discuss questions you have, even outside open enrollment and special enrollment periods. (Side note: special enrollment periods apply when you have a family status change, like getting married, getting divorced, or having/adopting a child.) 

Corporations review their employee benefits programs annually to flesh out their benefit options. This review process usually includes selecting the coverage amounts that should be available to employees and their families.

It’s common for employers to offer at least $10,000 for the team member’s base coverage amount. By purchasing optional life insurance, the team member may be able to secure another $10,000 to $250,000 (normally in $5,000 increments) to enhance their coverage. 

Employers must also sort out what, if any, optional life insurance they should make available for dependents. For instance, many corporations allow an employee to select an optional life policy for their spouse that’s valued anywhere from $5,000 to $100,000. Same as the employee’s life coverage, spousal protections can be increased in $5,000 increments.  

Many optional life programs allow the spouse to sign up without medical underwriting, if the face amount purchased is no more than $25,000. Should you want to get your husband or wife a higher face value policy, then the life insurer may require a medical exam.  

Child life protections are generally available in the amounts of $10,000 or $20,000. Employees are often able to insure unmarried kids up to age 26, with no age limit for disabled dependents. 

Obviously, to get optional life insurance for yourself or your family, you’ll have to already be signed up for your employer’s basic term life plan.

How Much Does Optional Life Insurance Cost?

Optional life insurance pricing is based on your age and/or your spouse’s age. However, we can tell you that optional term life insurance pricing is often only a matter of cents per $1,000 of protection. 

For example, if you’re less than 30 years old, your bi-weekly premium could be as low as $0.024 per $1,000 of coverage. So if you sign up for $100,000 of optional additional coverage, your bi-weekly premium could be just $2.40. 

The premiums for additional members, like a spouse or child, will vary and often cost more than the employee’s coverage. 

All your family’s life insurance coverage premiums are deducted automatically from your paycheck. This is a nice perk that makes it easy to maintain you and your family’s life insurance coverage. Obviously, premiums for the standard life coverage your employer provides you will not be deducted from your paycheck as the employer covers that cost.  

How Do Payouts Work With Optional Life Insurance?

Optional life insurance payouts work the same as any other life insurance coverage. The beauty of purchasing supplemental life insurance via your job is having an extra resource to guide you through the process. If you or your family need to file a life insurance claim, take the following steps.  

Optional life insurance claims process: 

  1. Gather the policy information and original, certified death certificate.
  2. Bring your documents to your employer’s human resources department for guidance.
  3. Complete a claim form and submit it along with the death certificate.
  4. Wait. Life insurance benefits are usually processed within 30 to 60 days of submitting the proper paperwork, under normal circumstances.

Pros and Cons of Optional Life Insurance

Not sure whether you want to purchase optional life insurance? We put together the following pros and cons of optional life insurance to help you decide.

Pros

  • Pricing: Your basic life insurance policy is free since your employer covers the cost. Should you opt for supplemental life insurance coverage, you’ll find the premiums are usually quite reasonable. 
  • Guaranteed acceptance: Most life insurance that’s available through an employer are guaranteed and don’t require medical underwriting. This applies to you, your spouse, and your children. 
  • Convenient: Life insurance benefits are usually part of the new-hire paperwork or part of the company’s annual open enrollment period. Your HR department will help you complete the application, answer your questions, and assist when (and if) you ever need to make a claim.

Cons

  • Low coverage: You may need quite a bit more life insurance for your family than what your employer is offering, even with optional coverage. If you do need a higher level of coverage, then you may want to talk with an insurance agent about getting an individual life insurance policy. 
  • Leave your job, void your coverage: If you leave your employer, then you may lose your life insurance policy. However, there are some life programs that allow former employees to convert their group coverage to an individual plan. The downside to this is having the premiums increase since your employer is no longer paying anything towards the coverage. 
  • Fewer options: Employer life insurance is normally one type of term life policy through one life insurer. You will not find a variety of choices when it comes to types of life insurance and life insurance companies. Talk with a financial advisor or life insurance agent to figure out if you want a more complex life product, like universal or whole life. 

Who Should Consider Signing Up For Optional Life Insurance?

We would recommend you always take advantage of free basic life insurance. You can never go wrong with providing for your family’s financial future without having to pay one penny.  Now let’s dig in deeper to analyze your employer’s optional life insurance. 

  • Calculate: You should calculate the amount of life insurance your family would need to survive the passing of a loved one. Once you know the actual face amount that’s best for your coverage, you can compare your employer’s optional life insurance pricing to independent policies purchased through the general market. If you can find an affordable life policy independently, then you may want to skip your employer plan. 
  • Career change: If you have any intentions of leaving your employer soon, then you might want to bypass their optional life insurance. That’s because employer coverage usually isn’t portable and will be cancelled once you change jobs. Of course, you should verify with the HR Department if you could convert your optional life insurance to a permanent policy upon leaving.
  • Conditions: If you or your family members have pre-existing health conditions, group life insurance may be the best option. If you keep your coverage below certain amounts, your employer will provide guaranteed-issue coverage that doesn’t require medical underwriting. 

Protecting Your Future Isn’t Optional

Optional life insurance may not be available to every worker at every job. However, if you’re fortunate enough to have an employer willing to offer optional life insurance, you should probably consider taking this protection. This is particularly true if you have no (or little) financial resources available to help your family should you pass away. 

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