Individual Insurance vs. Voluntary Benefits Insurance
- Employee Benefits
6 min. Read
Last Updated: 11/29/2019
Table of Contents
While many companies protect their employees through a traditional group health plan, there are other coverage types for business owners to consider. Depending on the size of the business, number of employees covered, and budget available to the business owner, individual insurance coverage and/or voluntary benefits policies can provide valuable workplace benefits.
What is individual insurance?
Individual insurance is a health plan that covers a single employee, with an option to add coverage for that employee's eligible family members. If the business consists only of a single consultant, freelancer, or sole proprietor, individual insurance may provide necessary medical coverage in a situation where group health coverage may not be available. Individual policies can also be tailored to the individual employee's needs, and employees can shop around for their ideal individual health insurance provider instead of using one chosen by their employer. Coverage can include:
- Health coverage that provides the insured and eligible dependents with medical insurance for doctor and hospital visits and prescription coverage.
- Vision coverage that provides the insured and eligible dependents with discounted rates or insurance coverage on eyeglasses, contacts, annual eye exams, and other vision care.
- Dental coverage that provides the insured and eligible dependents with either insurance or discounted rates for preventative and curative dental care.
- Long- and short-term disability insurance that provides 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 that provides a large financial payout to a named beneficiary upon the death of the insured. Life insurance plans can be in the form of term insurance, which only guarantees protection for a specified time period (typically 10 or 20 years), or whole life insurance, which guarantees coverage for the insured's entire lifetime as long as the policy premiums are paid when due.
When can you purchase individual health insurance?
Open enrollment for individual health insurance
With the advent 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 1 through December 15 of the previous year, and that designated time window is expected to remain in force for the next several years. However, there are some states that operate their own health insurance exchanges, so the exact open enrollment deadlines can vary from state to state. Also, notably, there are certain life events that 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, but 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
- 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 voluntary benefits?
Voluntary benefits are additional insurance offerings that employees voluntarily choose to add to their workplace benefits package. Typically, these benefits are fully funded by the employee, which makes them an attractive benefit offering for employers, since there's no direct cost to the business. Even though employees shoulder the cost, many workers still highly value this benefit, since it provides an opportunity to purchase insurance offerings at a group discount that would otherwise be unavailable to individuals.
How do voluntary benefits work?
In many cases, eligible employees will elect their voluntary employee benefit options as part of their regular benefits elections. Since voluntary benefits are separate policies not regulated under the ACA, coverage can be added at any point throughout the year. However, some employers opt to limit the enrollment period for these voluntary benefits to coincide with the healthcare open enrollment period for ease of managing and administering elections. A voluntary benefits program can include any or all of the following coverage types:
- Short- and long-term disability insurance — This insurance can replace part of the employee's income for several weeks or months in the event of an injury or disability that prevents the employee from resuming normal work duties. The specific amount of income replaced and length of coverage provided varies depending on the policy agreement.
- Life insurance — This insurance provides a large financial payout to a named beneficiary upon the death of the insured. Individuals can purchase either term or permanent life insurance on a voluntary basis, but this typically requires additional medical exams to evaluate the health of the insured.
- Dental and vision insurance — These benefits are the two most popular options, as they provide coverage for common preventative care issues. If offering dental or vision coverage as a group policy is too costly for a business, dental and vision coverage can easily be offered through a voluntary benefit plan.
- Hospital indemnity and critical illness — This protects against large financial burdens due to costly medical diagnoses or treatments. Cancer treatments, home health care, and extended hospital stays can all incur extensive medical bills, so this coverage is designed to help defray those costs.
Individual insurance vs. voluntary benefits insurance
Understanding the similarities and differences between voluntary and individual insurance coverage is critical to finding the right package that allows a business to optimize funds and offer competitive employee benefits.
Similarities between individual insurance and voluntary benefits insurance
Both individual insurance coverage and voluntary benefits can be of value to employees. They share some notable similarities:
- 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.
- 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.
- Both insurance types can cover a variety of areas. 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 be used to provide well-rounded coverage in a variety of situations, there are few significant differences between these two coverage types.
- Voluntary benefits are sponsored by the employer. Since voluntary benefits options are only offered through an employer-sponsored plan, individuals who are not employed will not have access to these options. Additionally, the employer chooses which benefits will be offered and at what coverage levels, giving employees less flexibility than with an individual plan.
- Individual insurance is completely paid for by the employee. While many business owners will pass the full cost of voluntary benefits on to their employees, this isn't a requirement. Some employers will cover a portion of voluntary benefits elections for their employees. With individual insurance coverage, however, the employee bears the entire cost.
Looking to get started with individual and voluntary benefits insurance? We can help.
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