Significance

Optional life insurance is purchased as part of your employer-sponsored life insurance plan. This life insurance may be group term insurance, group universal life or group whole life. Your employer will normally either purchase a base face amount of insurance for you or allow you to purchase the insurance yourself. This base amount of insurance is paid with pretax dollars. Those pretax dollars may only be used to buy a death benefit up to $50,000. Any death benefit beyond this amount will be paid with after-tax dollars.

Benefit

Optional life insurance allows you to take advantage of group life insurance rates, even if you aren't getting a tax break on the premium payments of the policy. This death benefit protection may be life insurance you need to protect your family, so you shouldn't buy less than you need. Because you are still buying optional insurance under the group plan, you get rates that are lower than private life insurance rates.

Disadvantage

Optional life insurance rates may be lower than individual rates, but you normally must pay for optional insurance with after-tax dollars, thus increasing the premium cost for you per $1,000 of death benefit. Additionally, your employer and the insurance company limit the amount of death benefit you may buy from your employer's plan. This limit is calculated by your employer as a multiple of your income.

Consideration

If you've purchased the maximum amount of optional life insurance, consider private life insurance if you still need more life insurance. Private term life insurance may provide a low-cost option for filling in any gaps you have that could not be met with your employer group plan. While not as cheap as a group term policy, private term life is better than nothing and is the lowest-cost option for private insurance.