Individual Benefits Insurance vs. Voluntary Benefits Insurance

While voluntary and mandated (or non-voluntary) benefits may address similar employee needs, the structure and cost are very different. This article breaks down the essentials of mandatory vs. voluntary benefits to help you decide which approach works best for your employees and aligns with your business goals.

While many companies protect their employees through a traditional group health insurance plan, there are other coverage choices worth considering. Depending on the size of your business, the number of employees, and your budget, both individual insurance coverage and voluntary benefits programs can offer valuable protection.

What Are Voluntary Benefits?

Voluntary benefits are additional insurance options that employees can choose to add to their workplace benefits package. These programs are typically funded by employees, though in some cases employers may choose to contribute. Since most voluntary benefits are employee-funded, they are an attractive option for businesses that want to broaden benefit offerings without increasing costs.

In simple terms, voluntary benefits are employee-paid insurance products offered through the workplace at group rates. Because the coverage is purchased collectively, employees often gain access to more affordable plans than they could find on their own.

Because they are optional, employees can choose the programs that best fit their needs and budget. Employers, in turn, can strengthen their overall benefits package without significant expense.

How Do Voluntary Benefits Work?

In many cases, eligible employees will elect their voluntary employee benefits options as part of their regular benefits elections. Since voluntary benefits are separate policies and not regulated under the Affordable Care Act (ACA), some coverage plans can be added at any point throughout the year (does not apply to PEO-sponsored plans).

For healthcare plans, enrollment usually takes place during the annual open enrollment period, which makes it easier to manage and administer employee elections.

What Are Some Examples of Voluntary Benefits?

What are voluntary benefits for employees? These optional insurance plans give employees more flexibility to protect themselves and their families, while letting employers expand their benefits package without taking on extra costs.

Some of the most common examples include the following:

• Short-Term and Long-Term Disability Insurance: Disability coverage replaces a portion of an employee's income if they are unable to work due to illness or injury. Short-term disability typically lasts a few weeks to several months, while long-term disability may extend for years. California, Hawaii, New Jersey, New York, and Rhode Island currently mandate short-term disability, but in most places, this benefit is voluntary.
• Life Insurance: Voluntary life insurance is employee-paid coverage offered through an employer, typically available as term life (coverage for a set number of years) or whole life (coverage that lasts for the employee's lifetime and may include a cash value component). These policies provide a guaranteed death benefit to a named beneficiary. They are typically paid for through payroll deduction, making them more convenient and affordable compared to purchasing individual coverage on the open market. Many plans also include portability, meaning employees can keep their policy if they leave the company. Depending on the level of coverage chosen, medical underwriting may be required.
• Dental and Vision Insurance: Two of the most popular voluntary benefits, these can cover preventive care, exams, and corrective treatments. For businesses where group dental or vision coverage is too costly, offering it as a voluntary benefit provides employees with access at discounted group rates.
• Hospital Indemnity and Critical Illness: These policies help employees manage significant out-of-pocket costs tied to hospital stays, cancer treatment, or serious medical conditions. They provide lump-sum or daily cash benefits to ease the financial strain of extended care.

Voluntary benefits at a glance:

What Is Voluntary Life Insurance?

Voluntary life insurance is an optional policy that employees can buy through their workplace, usually at lower group rates. The employee decides whether to enroll and how much coverage to carry. Premiums are paid by the employee, most often through payroll deduction, which keeps the process simple. In many cases, the coverage is portable, so an employee can keep the policy even after leaving the company.

There are two common types. Term life insurance covers the insured for a set number of years — 10, 20, or 30 are typical — and pays a benefit only if death occurs during that term. Whole life insurance stays in force for as long as premiums are paid and includes a guaranteed death benefit, with the added possibility of building cash value over time. These choices give employees room to pick the coverage that fits their family's needs now and in the future.

Term Life vs. Whole Life Voluntary Insurance

Voluntary vs. Non-Voluntary Dental Insurance and Vision Insurance

Dental and vision coverage are among the most common add-ons in employee benefit programs. Employers may offer them as voluntary benefits or as employer-paid plans. Both types are important for supporting overall employee health and wellness — helping workers afford preventive care, manage costs for more complex treatments, and stay productive. Whether the employer or employee pays the premiums, providing access to dental and vision coverage is one of the most valued workplace benefits.

To clarify how these benefits differ depending on how they're offered, here's a simple breakdown:

What Is Individual Insurance?

Individual health insurance is a policy that covers one person, with the option to extend coverage to an eligible spouse or dependents. It's often the best choice for freelancers, consultants, or sole proprietors who don't have access to an employer group plan. Unlike employer-sponsored benefits, these plans are bought directly by the employee and can be shaped to fit personal healthcare needs.

A major advantage is flexibility. Employees can choose coverage levels and provider networks that match their situation, from bronze to gold tiers under the Affordable Care Act (ACA). The coverage is also portable, so it stays in place if someone changes jobs or decides to work for themselves. For those who qualify, ACA subsidies can reduce premiums and out-of-pocket costs. This combination — customization, portability, and potential financial help — gives individuals more control over their healthcare.

What Are Some Examples of Individual Insurance?

Individual insurance programs can include any or all of the following:

• Health Coverage: Medical insurance for doctor and hospital visits as well as prescription coverage, available to the insured and eligible spouse and dependents.
• Vision Coverage: Discounted rates or insurance coverage on eyeglasses, contacts, annual eye exams, and other vision care for the insured and eligible spouse and dependents.
• Dental Coverage: Insurance or discounted rates for preventative and curative dental care for both the insured and eligible spouse and dependents.
• Long- and Short-Term Disability Insurance: Financial compensation in the event the employee is injured and must take a significant amount of time off work because of the injuries (typically longer than two weeks).
• Life Insurance: A lump sum to a chosen beneficiary when the insured person dies. Coverage can take two main forms. Term life insurance lasts for a set period, often 10 or 20 years, and only pays out if death occurs during that time. Whole life insurance stays in place for the person's lifetime, as long as premiums continue to be paid.

One of the benefits of individual health insurance is that it gives individuals the flexibility to tailor coverage to their unique needs, especially when employer-sponsored plans aren't available or sufficient.

When Can You Enroll in Individual Health Insurance?

There are two types of enrollments in individual health insurance — open enrollment and special enrollment.

Open Enrollment for Individual Health Insurance

Since the enactment of the Affordable Care Act (ACA), individuals can no longer purchase health insurance — even individual policies purchased separately from employer-sponsored insurance plans — at any time. Instead, most insurance is purchased during a designated time of the year known as open enrollment.

Since 2018, the period of open enrollment for individual health insurance has been November 1st through December 15th of the previous year for a January 1st effective date, plus December 16th through January 15th for a February 1st effective date, and these designated time windows are expected to remain in force for the next year.

However, some states operate their own health insurance exchanges so the exact open enrollment deadlines may vary from state to state. Additionally, certain life events qualify for a special enrollment period.

Special Enrollment Period for Health Insurance

Individuals who did not purchase a health plan during open enrollment for individual health insurance can become eligible to get new individual insurance coverage if they experience one of several qualifying life events. These events represent significant life changes for individuals and families, so experiencing such an event will provide an opportunity to make changes to existing coverage or purchase new coverage. You can find out if you qualify for the special enrollment period on healthcare.gov, the federal government's health insurance exchange website.

Life events that qualify individuals for a 60-day special enrollment period for health insurance include:

• Getting married
• Getting divorced
• Having a baby, adopting a child, or placing a child for adoption or foster care
• Moving
• Becoming a U.S. citizen
• Leaving incarceration
• Losing other health coverage due to job loss, divorce, COBRA expiration, or aging off a parent's plan
• Losing eligibility for Medicaid or the Children's Health Insurance Program (CHIP)
• A change in income or household status that affects eligibility for premium tax credits or cost-sharing reductions
• Gaining status as a member of a Native American tribe

What Are Mandated Benefits for Employees?

Certain benefits are set by law. What you must provide depends on the size of your workforce and where your business operates. Every state requires employers to carry unemployment insurance and most states require employers to carry workers’ compensation. In addition, a handful of states mandate short-term disability coverage for full-time employees.

The distinction from voluntary benefits is straightforward. Mandated benefits are required and the employer pays the cost, while voluntary benefits are optional programs that employees can elect and typically fund on their own.

Voluntary vs. Non-Voluntary Insurance Plans

Understanding the similarities and differences between voluntary and non-voluntary individual insurance coverage is essential for finding the right benefits package that enables a business to optimize its funds and offer competitive employee benefits.

Similarities Between Individual Insurance and Voluntary Benefits Insurance

Both individual insurance coverage and voluntary individual benefits can be of value to employees since they share some notable similarities:

1. Both insurance types are customizable. When choosing an individual plan or when choosing voluntary benefits, individuals can select the coverage options that are best for their needs, family size, and budget.
2. Both insurance types can cover dependents. With both individual insurance coverage and voluntary benefits options, eligible dependents, such as a spouse or children, can be added to the policies for an additional charge.
3. Both insurance types can cover a variety of benefits. Dental, vision, disability, and life insurance are just a few examples of coverage that can be provided through either an individual policy or through voluntary benefits.

Differences Between Individual Insurance and Voluntary Benefits Insurance

Although individual insurance and voluntary benefits can both help create well-rounded coverage, there are two major differences to keep in mind:

1. Voluntary benefits are sponsored by the employer. Employees can only access them through the workplace, and while they usually pay the full cost, some employers choose to subsidize part of the premiums. Employers also decide which voluntary benefits to offer and at what coverage levels, so employees may have fewer choices compared to purchasing their own plan.
2. Individual insurance is purchased and paid for directly by the employee, unless the employer provides support through a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) or an Individual Coverage Health Reimbursement Arrangement (ICHRA). These plans generally provide more flexibility, portability, and customization than employer-based coverage.

For employers, the decision often comes down to budget, workforce size, and the specific needs of employees. Paychex helps businesses evaluate benefit options, navigate reimbursement arrangements like QSEHRA and ICHRA, and simplify benefits administration through integrated payroll and HR tools — making it easier to build the right mix of coverage for both the company and its people.