Voluntary Benefits 101: What are they and how do they work?

Employers and employees increasingly recognize the power of voluntary benefits to improve and personalize benefit packages. Indeed, in 2022, there was a 41% increase in employers offering voluntary benefits and a 16% increase in employees eligible for them.¹

In terms of retaining top talent, Voya’s new consumer survey found that nearly half of employed Americans (49%) indicated they are likely to stay with their current employer if they offered access to voluntary benefit offerings like critical illness insurance,* hospital indemnity insurance, disability income coverage, and/or accident insurance.²

The rise in interest is understandable. Voluntary benefits can help employers provide their workforce with additional benefit options. In turn, these benefits can then help employees minimize the financial impact of specifically covered events such as an illness or hospitalization.

Voya’s survey also reveals that nearly two-thirds of American workers (63%) indicated that they are likely or extremely likely to participate in more voluntary benefits offered by their employer (like critical illness, accident, disability, hospital indemnity, supplemental life insurance, etc.)² in 2023, which is up from 45% in 2021.³

This trend of increased interest in voluntary benefits is also significantly higher among working Americans with children at home (76%)² — which is up from 52% in 2021.³ From a generational standpoint, 71% of millennials indicated that they are likely or extremely likely to participate in more voluntary benefits offered by their employer,² which is up from 52% in 2021.³

But even as the trend toward voluntary benefits grows, many employers and employees still question what these benefits are and how they work. Let’s dive into the world of voluntary benefits and explore how this growing suite of products can help companies and employees alike. 

What are voluntary benefits?

Employers use voluntary benefits to supplement their employee benefits package. As their name suggests, they are not part of the standard benefits provided but instead optional for employees. Voluntary benefits encompass a wide range of areas, from financial to mental health to personal benefits to identity security. Besides critical illness, hospital indemnity, disability income and accident insurances, other voluntary benefits include student loan repayment assistance, employee assistance programs (EAPs), and even pet insurance.

Unlike health insurance or retirement plans, voluntary benefits allow employers to increase their benefit offerings without a lot of extra costs to them. In fact, employers and employees may even share the cost of voluntary benefits. Employees can elect the benefits that serve them and based on what the employer offers, may pay part, or all, of the premium.

For employers, the expenses can vary based on what they offer and how they offer it. For some voluntary benefits, they may pay administrative fees and incur minor ancillary costs, such as time spent by HR staff to communicate and educate employees about the offering. The bottom line is that voluntary benefits enable employees to customize their benefits package and supplement a company’s standard offering with specific additions they feel they want and need.

A holistic benefits approach

Employers are leveraging voluntary benefits to create more competitive packages. As of 2020, nearly nine out of 10 employers offered at least one voluntary benefit.⁴ That figure increased to 96% among larger employers (those with more than 500 employees).4

The added options enable employees to build out more holistic plans and make optimal choices for their families and finances. For instance, an employee may opt for a less expensive health insurance plan with a higher deductible and then also enroll in something like hospital indemnity insurance, which pays a daily benefit for a covered hospital stay.

It’s important to note that coverages such as hospital indemnity, critical illness and accident insurance are limited benefit policies. They are not health insurance and do not satisfy the requirement of minimum essential coverage under the Affordable Care Act. 

These benefits can offer employees more coverage options. But the reasons for providing these benefits go far beyond providing options for customization of a benefits package. Employers report that they rely on voluntary benefits to help attract and retain employees.

Since Gen Z and millennials carry 40% the nation’s student loan debt, they may value student loan assistance programs,⁵ while other workers with a family history of a specific health condition may value critical illness insurance.⁶

In a competitive job market, benefit options that offer increased protection can help improve employee satisfaction — and more than 94% of employers say voluntary benefits are a key part of their employee recruitment strategy.⁷ Companies are also using voluntary benefits to offer more flexibility so employees can personalize their coverage to meet their unique needs.⁷

Benefits that yield returns

If employers utilize voluntary benefits for all the above reasons, then the next logical question is: Do they work? The answer is yes. In fact, there are several studies that show voluntary benefits have a positive impact on employees — and provide returns for employers as well.

Seventy-six percent of employees report that voluntary benefits impact their employer’s ability to retain them — an increase from 68% in 2020.⁸ In addition, 3 in 4 employees say they consider staying or leaving their employer based on whether voluntary benefits are offered or not.⁸

HR professionals are also report that offering voluntary benefits to their workforce:

• Improves employee engagement (72%)⁸
• Saves employees money (63%)⁸
• Increases employee productivity (53%)⁸

Employees turning to their employers for more help

While voluntary benefits may seem like nice-to-haves, in the wake of the pandemic, they are rapidly becoming must-haves. The COVID-19 crisis revealed how benefits help (or hinder) employees during challenging times. And today, many employees are demanding and expecting their employers to offer more assistance across a range of issues.

According to a recent LIMRA report, 36% of employees view their workplace benefits as being more valuable today than they were before the COVID-19 pandemic.⁹ Voluntary benefits can help provide another layer of protection and typically cost less — compared to similar coverage purchased individually.⁷

For example, pregnancy is one of the most common reasons for hospitalization among non-elderly people.¹⁰ A Kaiser Family Foundation analysis found the average cost of having a baby is nearly $18,900 for people with large employer group insurance plans, with out-of-pocket payments averaging roughly $2,850.¹⁰ Hospital indemnity insurance provides a benefit that can help with those out-of-pocket costs when an employee has a covered stay in the hospital.

When an insured is diagnosed with a covered illness or condition, a critical illness insurance benefit can also be used for out-of-pocket medical costs, as well as household expenses like rent, utilities or a mortgage.

Voya data has also found that 68% of millennials agree or strongly agree that they are not able to pay down their debt as quickly as they want to because of inflation.¹¹ To help address this concern, employers can set up a Student Loan Repayment Program (SLRP). One SLRP option enables companies to make direct after-tax contributions to the servicers of their employees’ student loan debt.

The employer is — in effect — making loan payments on behalf of the employee, but since the money is considered income for the employee, both the employer and employee must pay taxes. This solution helps employees pay down their debt more quickly and, in turn, direct more of their income toward other saving and spending needs.

We offer a range of voluntary benefit options

Our suite of voluntary benefits can help employers enhance their existing plans and reduce the expense of out-of-pocket expenses for their employees when they experience a covered event:   

• Health account solutions. These include health savings accounts, flexible spending accounts and commuter benefits accounts. These accounts help employees save more easily and efficiently for health care, commuting, and even childcare expenses.
• Emergency savings solutions. This is a benefit that can help employees build up their emergency savings so that their finances don’t get derailed by an unexpected medical or other expense.
• Student loan debt solutions. These include a range of resources for employees navigating student loan debt, including access to repayment options, financial counseling and guidance, and employer assistance for paying down loans.
• Supplemental health insurance benefits. From critical illness and accident to hospital indemnity, these voluntary benefits can help employees lessen the financial impact of a covered event such as an illness, accident or hospitalization.
• Disability income insurance. Short term disability and long term disability products enable employees to replace a portion of their income during periods when they’re unable to work due to an illness or injury.
• Life insurance. Access to life insurance products, such as group term and whole life, provide employees with coverage that will pay a benefit to their beneficiary, often a spouse or other family member, in the event they pass away.

Conclusion

Employers can support their employees by connecting them to meaningful voluntary benefits. These benefits can also support the whole employee, helping them to achieve a healthy balance of living for today, preparing for tomorrow, and feeling confident about the future. In the wake of COVID-19, offering voluntary benefits is increasingly important as more employees turn to their employer for support. Offering these types of benefits are not only good for employees, but they’re also good for business.

Want to learn more about our voluntary benefits suite? Contact your Voya representative today.

Neither Voya® nor its affiliated companies or representatives provide tax or legal advice. Please consult a tax adviser or attorney before making a tax-related investment/insurance decision.

Read related articles:

• Voluntary Benefits: The mental health-financial wellness connection
• 5 employee trends driving the growing case for voluntary benefits
• Infographic: Why voluntary benefits can lead to happier employees