Military members have access to affordable group life insurance through the Servicemembers Group Life Insurance (SGLI) Program. However, you can’t take it with you when you leave. These other affordable life insurance options can help protect you and your family.
If the worst happened and you didn’t make it home one day, life insurance could help your grieving family by replacing your income for a while.
As a military member, the VA, as well as organizations like USAA, can help you get life insurance coverage. But what if you’re not active any longer?
In either case you need to know how insurance works, how much to buy and how to stay covered after your retirement from active-duty.
The Best Life Insurance is the Right Life Insurance
Despite its confusing complexities, life insurance has one guiding mission: To replace your income if you die unexpectedly, leaving behind financial dependents.
While your life cannot be measured with a dollar figure, you can measure your income and assess your financial needs now and in the future.
This measurement will help you find the right-sized life insurance policy, which could strengthen your family’s ability to rebuild a new life as they mourned your loss.
Life insurance gives your family access to this coverage, known as a death benefit, in exchange for the premiums you pay to keep the policy active.
Spousal Life Insurance
Even if your spouse doesn’t earn income, you may want life insurance coverage for them too.
A non-enlisted spouse provides valuable services you would otherwise need to pay for, such as child care, home management, meal preparation, transportation and shopping. As any stay-at-home-parent knows, the list goes on and on.
Life insurance coverage on your spouse could help your family stay on track financially and maintain your ability to earn income if your spouse died unexpectedly.
Types of Life Insurance
The life insurance industry has grown more sophisticated over the past few decades, and so have the types of policies available. Modern policies can include investment components, for example.
Ultimately, though, you can divide life insurance policies into two categories: term life and whole life.
Term Life Insurance
These policies last a specific amount of time, known as a term, and then expire. Because they expire in 10, 15, 20 or 30 years, term policies can usually offer more coverage at a lower cost to you.
Affordability — Term life insurance policies are generally more reasonably priced than whole life policies, which can be a big benefit if you’re on a tight budget.
Simplicity — Term life insurance policies only require two main decisions: how much coverage do you need, and how long do you want it to last (term).
Stability — There are no major changes with term life insurance. Once the term and amount are set, a monthly payment is established and locked in for the length of the term.
Cons
Temporary Coverage — One of the major advantages of term life insurance is also its primary disadvantage – the coverage will expire at the end of the term. If a 30-year-old buys a 20-year level term policy, it will expire when they turn 50, meaning they will have to get a new policy.
Inflexibility — While you are initially able to select the exact amount and term of your policy, changes cannot be made after it has been established.
Whole Life Insurance
Whole life policies can last the rest of your life, and they include complexities such as an investment component or an added cash value that grows as time passes. Because of their permanence and their more complex features, whole policies tend to cost significantly more and may not be a fit for military members.
Whole life policies include several variations: universal life, indexed universal life and variable universal life.
If you’re looking for coverage while you’re on duty, you probably won’t need to worry too much about these more complex coverages.
However, if you need a more complicated policy that could tie in with your overall financial plan for the future while also providing a death benefit if required, you should speak with a financial advisor or an independent life insurance agent.
Pros
Permanence — Whole life (also known as permanent life) offers coverage for your entire life, as long as you make your premium payments.
Flexibility — Changes can be made throughout the life of the policy to adjust amounts and other elements.
Accruing Value — Whole life insurance policies can build cash value over time, which is tax-deferred. The accumulated money can be used for a down payment on a home, college tuition, or even retirement.
Cons
Expense — Whole life insurance is much more expensive than term, in part due to it lasting for life. Whole life premiums can cost up to 5 to 15 times more than basic term policies.
Complexity — With the additional options of whole life comes an added layer of complexity to navigate. Some offer guaranteed rates of return, while others let you choose a mix of investments. Some require you to pay fixed premiums, while others let you vary the amount based on your current circumstances.
How Much Life Insurance You Should Buy
When you’re ready to secure life insurance coverage, you’ll need to decide how much coverage to buy.
The size of your policy determines the size of the death benefit your family could claim if you died, and it will help set the amount you’ll pay in premiums.
Many financial advisors recommend having coverage equaling at least seven to 10 years of your annual pay. If you earn $50,000 a year, you’d need $350,000 to $500,000 in coverage based on this guideline.
This number provides just a starting point though. Your life insurance should address your family’s specific needs:
- Housing: If you just got a new mortgage, for example, you may want enough coverage to pay off the balance so your family wouldn’t have to move. If your home is paid off, you may not need as much coverage.
- Other Debts: Someone who would leave behind a lot of debt — auto loans, private student loans or credit card debt, for example — should consider getting enough life insurance coverage to pay off these outstanding balances.
- Education: Does your son or daughter plan to attend a private high school? What about college tuition savings? You may want to consider this when choosing a life insurance coverage amount.
- Savings: If you’ve been able to save a significant amount of money, you may need less life insurance than someone with no savings.
How Much Life Insurance You Should Purchase for a Spouse
Your spouse’s life also can’t be measured with a dollar figure, so you’ll need to consider how their death would change your financial picture.
If you’d have to hire live-in help, build this cost into your spouse’s coverage. Likewise, if you’d have to move or change jobs as you adjusted to the loss of your spouse, you should consider these costs as you build the safety net life insurance can offer.
Group Life Insurance Versus an Individual Policy
When a civilian buys a personal life insurance policies, they typically complete a thorough underwriting process, which helps the insurer determine the applicant’s eligibility for coverage.
In a nutshell, it works like this: An applicant who poses a higher risk of dying sooner will pay more for coverage or may even be ineligible for coverage. People who present the lowest risk can get excellent life insurance rates.
Insurers determine this risk by asking questions about an applicant’s lifestyle, profession, health history and family health history. An applicant’s age, tobacco status and current health condition help underwriters assess this risk. Applicants also often undergo health exams.
Group policies, like those military members and veterans can get through the Department of Veterans Affairs, work differently. Assembling policies in a group insulates the insurer from the risk associated with individual plans.
Military members can get group coverage through:
- Servicemembers Group Life Insurane: SGLI provides group coverage at great rates for active-duty military members and some trainees and military academy students.
- Veterans Group Life Insurance: VGLI provides group coverage for veterans.
- Family Servicemembers Group Life Insurance: FSGLI allows SGLI enrollees to extend coverage to their family members. In most cases, the service member pays the premiums.
Pros
Great Rates — Even if you have a health condition that could limit your ability to get an affordable personal policy.
Flexibility — Group life insurance provides additional optional coverage for your spouse or family members.
Cons
Gaps — Coverage caps may not provide enough protection for higher-earning officers
Loss of Coverage — SGLI coverage is lost at discharge, though you can convert to a VGLI policy. USAA, an insurance association created by and for military memebers, can also help you convert an SGLI policy to coverage you can keep after your discharge.
Military Life Insurance Options
We’ve already discussed SGLI, which extends coverage to active duty military members.
Here are some more details if you’re thinking about enrolling:
Eligibility for SGLI
You can enroll in SGLI coverage as high as $400,000 if you are on active duty with the Army, Air Force, Coast Guard, Marines or Navy.
Cadets, midshipmen or other U.S. military academy members can also qualify, as can Reserve Officers’ Training Corps trainees participating in authorized training missions.
The VA’s qualifications for SGLI eligibility change from time to time, so be sure to check the VA’s site if you’re not sure whether you qualify.
Coverage for Family Members
SGLI can also extend a smaller amount of coverage to your spouse or other family members through Family SGLI, or FSGLI.
Premiums will be paid by the service member and not the spouse. Premium amounts increase every five years, and coverage remains in place only while you’re eligible for SGLI coverage.
SGLI Coverage Limitations
For some enlistees and officers, SGLI can provide enough military life insurance coverage. But everyone should assess their specific life insurance needs to answer this question.
If you’re a higher earner, SGLI’s cap of $400,000 in coverage may not be enough to sustain your family’s current lifestyle and future needs while they recover from losing you.
Higher earners may want to supplement their SGLI coverage with a personal policy. Getting a personal policy usually requires taking a medical exam. You’ll also want to make sure you don’t buy coverage unless it pays the death benefit even if you die in an act of war.
Coverage After I Leave the Military
Like any group policy associated with an employer, you will become ineligible for SGLI when you leave the military.
You can convert to a VGLI policy, whose death benefit and premiums will depend on your level of SGLI coverage and your age. Unlike SGLI, your VGLI premium changes periodically as you age.
A personal policy will continue regardless of your military status and will be governed only by the terms of your policy.
A 30-year term policy, for example, will expire after 30 years. A whole life policy can last the rest of your life.
Bottom Line: Life Insurance is Personal
Whether you stick with group insurance through SGLI and its associated programs or buy an individual policy, your coverage should meet your specific needs.
If you’re buying a personal policy, compare quotes online, but also look for quality coverage. Insurance rating agencies can help you assess an insurance company’s financial health.
If group coverage can provide the coverage you need, check with the VA about SGLI’s terms and conditions to be sure you’re doing everything you can to protect your family’s financial future in an uncertain world.
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