When you're hired by your employer, he may offer you a wide variety of fringe benefits. These benefits may include life insurance. Life insurance benefits offered by your employer may also be paid for by your employer. On top of these benefits, your employer may offer you voluntary life insurance benefits, all of which are pretax to some degree.
Definition
Voluntary life insurance is life insurance you purchase in excess of the base amount of insurance offered to you by your employer. This insurance is like any other type of group life insurance, except for the fact that you must pay for this insurance yourself. Your employer doesn't pay for the premiums on your behalf: Instead, you pay for the premiums out of your paycheck. These premium payments reflect the same premium rate your employer pays for life insurance.
Benefit
You pay for group life insurance with pretax dollars. The IRS allows you to exempt a portion of your premium payments from federal income tax, Social Security, Medicare and unemployment tax. The exemption is capped, for Medicare and Social Security, at an amount of premium required to pay for $50,000 worth of death benefit. There's no cap on the exemption from unemployment and income taxes. You also get the benefit of obtaining life insurance without a medical exam and the opportunity to purchase more than what your employer would otherwise give you.
Disadvantage
You normally can't take this life insurance with you when you leave your employer. Unless your employer offers a conversion of your group coverage to permanent life insurance, you can't take your life insurance with you. Even if you can convert your life insurance, you can't continue to pay for it with pretax dollars. Your premium rates also start to reflect higher private insurance rates, rather than group insurance rates.
Consideration
You should consider carrying both private and group life insurance. Group life insurance is appropriate when you can't afford high premiums but need life insurance coverage. Private life insurance is ideal when you lose your job, or if you switch jobs and your new employer doesn't offer life insurance benefits. In particular, your private insurance policy ensures that you get the insurance coverage you need and protects you if you become uninsurable after you leave your job.