Voluntary benefits are employer-sponsored benefits sold to employees of the sponsoring company. The premiums are paid for entirely by the employee, who can choose whether to participate (hence, the name "voluntary").
Premiums are usually collected by the employer via payroll deduction and remitted to the insurance carrier as a single, lump sum payment. Once available to only the largest employers, voluntary benefits today are especially attractive to small and medium size businesses.
Popular voluntary benefits include Life insurance, Supplemental Health insurance, Auto / Home insurance, Accident coverage, Short-Term and Long-Term Disability insurance, Dental insurance, Vision insurance, Long-Term Care insurance, Pet insurance, Pre-paid Legal insurance, Identity Theft, and Critical Illness insurance.
As the name implies, voluntary benefits are optional for both the employer and employee. The key benefit they provide the employer is the ability to offer their employees a more valuable employee benefit program at virtually no cost or hassle for the company.
Voluntary benefits complement your existing employer-provided benefits programs. With flexible plan designs, employees have an opportunity to obtain reasonable coverage for them and their families at an affordable cost - and at no additional cost to you.
As an employer in a competitive job market, a comprehensive portfolio of benefits has become a necessity. When health insurance costs have never been higher, the light at the end of the tunnel for many employers may be the added value of a voluntary benefit program as part of the total compensation package.
Voluntary benefits are benefits that employees elect to participate in and pay for on their own. They are benefits that employees want and need. Most voluntary benefits are geared toward full-time benefit-eligible employees, however, some employers also use voluntary benefits to offer part-time and temporary employees valuable benefits options.
Voluntary benefits are becoming increasingly popular because they offer advantages to both employers and employees. For employers, voluntary benefits can help level the playing field when competing with larger companies for talented employees. A recent survey by World at Work, in collaboration with the Employee Benefits Research Institute, concluded that benefits are often a deciding factor in an individual's decision to take a job. Seventy-eight percent of respondents to the survey indicated that benefits were "very important in job selection."
Because voluntary benefits are offered on a group basis, rates are generally lower and underwriting requirements are less restrictive than comparable, individual coverage. For example, individual disability income policies typically require an applicant to provide a complete medical history and undergo a physical examination. In contrast, a guaranteed issue group policy may only require that a person be a full-time, active employee. And, many voluntary benefits are "portable," meaning that a covered individual can continue his or her coverage once he is no longer eligible to participate in the group plan because of job changes, layoffs, divorce, or other reasons.
Employers want their employees to focus on making benefits decisions carefully, particularly when creating their own customized benefits program from a portfolio of voluntary benefits. Employees are becoming increasingly aware of the gaps in their benefits coverage and the increasing cost of co-pays and coinsurance, and are looking for ways to fund these gaps. Employers are showing a growing interest in non-traditional benefits, and the benefits industry is responding with new and innovative products/services
A challenging economy has made employees more concerned than ever about lost income, generating new interest in Short-Term Disability insurance and other income replacement coverage, an anchor product of many voluntary benefits packages.
Many of the complexities associated with voluntary benefits programs lie in program management, an area in which technology creates valuable efficiencies. For the employer, one of the most attractive features of a third-party administered voluntary benefits program is the minimal administration work required.
Using sophisticated online systems, a third-party voluntary benefits administrator can streamline all aspects of program management, from satisfying insurance carrier/provider requirements to regularly updating payroll files. A third-party voluntary benefits administrator offers employers a comprehensive administrative solution that includes: customer service, decision support tools, multi-channel enrollment, payroll deduction, and employee communications.
The third-party voluntary benefits administrator manages the communications of the program through an on-site representative, the Internet, intranet or company newsletter. A third-party voluntary benefits administrator can also customize communications to include the employer's logo. Most third-party voluntary benefits administrators will pay for the cost of the communication materials so employers won't have to worry about more fees associated with the program.
In an employer-sponsored voluntary benefits program, the employer is not required to fund the voluntary benefits. Depending upon the benefits selected, employees can have the premium/cost deducted from their paychecks or they could be billed directly at home.
Recent studies conducted to better understand the attitudes and purchase behaviors of employees regarding their voluntary benefits indicate the importance of affordable rates and the convenience of payroll deduction. It was clear that employees appreciate the value and convenience of employer-sponsored voluntary benefits. The top three advantages cited by the employees surveyed are:
- Affordable of Group Rates (74 percent)
- Convenience of Payroll Deduction (71 percent)
- Ease of Not Having to Shop for Coverage/Benefits on Their Own (67 percent)
Voluntary benefits made available through payroll deduction are often more affordable. Minimum premiums for most individually-purchased Life insurance policies start at more than $100 per month, well out of reach for the average employee, whereas a voluntary Life insurance plan made available through an employer-sponsored program can be purchased for as little as $4 per week.
Benefits that require a monthly premium, such as car insurance, can be taken out of the employee's paycheck each month and transferred directly to the insurer/provider. Many third-party administrators will work with the employer to minimize the number of payroll slots required for voluntary benefits payroll deduction. Ideally, one payroll slot can be used for most benefit payments.
Pre-Screening of Insurers/Providers
Insurers/providers are pre-screened by the benefits administrator and employer from best-in-class insurers/providers, eliminating the employees’ need to research products/services on their own. The best-in-class model takes into consideration the size of the company, industry, and employee demographics to develop a strong voluntary benefits program. It utilizes in-depth knowledge of the markets, underwriting expertise, and claims analysis capability, combined with benchmarking survey data and compliance review expertise to select appropriate insurers/providers.
Group Underwriting
Most insurers specializing in third-party administered voluntary products will reduce the number of health questions. Rates are based primarily on the number of employees in a group. This may mean that employees with health challenges may be eligible to purchase coverages such as Disability or Life insurance through an employer-sponsored plan that they might not be able to purchase as an individual applicant.
Portability
The ability of an employee to retain coverage after separation from their employer is an important employee benefit that varies by benefit and insurer/provider. Many benefits can be easily transferred to an individual policy and billed to the employee’s home. Typical benefits that are often portable include Group Universal Life, Long-Term Care, Auto/Homeowner, and many others.
Tax Considerations
Employers and employees can save money by taking advantage of voluntary benefits programs available through an IRS Code Section 125 Plan (where appropriate). Employees can choose certain plans, such as Critical Illness insurance, Accident, or Short- and Long-Term Disability plans and pay for those benefits on a pre-tax basis through payroll deduction. Having the premiums deducted from their paycheck and remitted to the insurer/ provider on their behalf, further increases the overall value of the plan to the employee. In the instance where a benefit is available on a pre-tax basis, the employee and the employer are able to take advantage of tax savings.