SGLI Conversion to VGLI – Why VGLI Might Be Better Than Whole Life Insurance

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According to the VA Department, SGLI ends when you leave the military, unless you qualify for a disability extension. Although you’ll no longer have your SGLI, there are two ways to continue your $400,000 coverage. If done within a certain timeframe, you can continue coverage without having to prove good health (part of the insurance…

According to the VA Department, SGLI ends when you leave the military, unless you qualify for a disability extension.

Although you’ll no longer have your SGLI, there are two ways to continue your $400,000 coverage.

If done within a certain timeframe, you can continue coverage without having to prove good health (part of the insurance underwriting process).

You can convert to either:

  • Veteran’s Group Life Insurance (VGLI):  Must be done within 240 days of discharge.
  • A permanent commercial life insurance policy, such as whole life insurance.   Must be done within 120 days of discharge.

These two options are codified in U.S. law and are in place to allow any servicemember to continue this coverage permanently.

Two Questions

This article will outline the difference between the two insurance options and discuss why VGLI might be the better option.

But first, we need to answer two questions.

Question 1:  Am I limited to only two options?

For the purposes of this article, yes.  While term insurance might be less expensive than whole life, it does require medical underwriting.

So let’s assume this article focuses on people who might have a difficult time obtaining a term life insurance policy, due to age, health, disability, or lifestyle.  All of which can significantly impact one’s ability to obtain a term life insurance policy in the first place.

If that’s the case, then we’re limited to the two types of policy conversions allowed under U.S. law.

Personally, I’m a fan of term insurance… if you can get a term policy, you should look into it to see if it makes sense for your situation.

Question 2:  What is the purpose of life insurance?

Life insurance plays one primary role—to pay a predetermined amount of money to a beneficiary when the insured person dies.  If anyone tells you that life insurance also serves as a sound way to invest your money, you should ask:

“How much is the difference between your first-year commission for a term policy and a whole life policy for the same amount?”

The answer might surprise you.  Life insurance agents get paid in two ways:  first year commissions and trailing commissions.  Generally speaking, a life insurance agent’s first-year commission is roughly the cost of the first year’s premiums.  If you look at the difference between a term policy’s premiums and those of a whole life policy, it’s easy to see where the incentives lie.

VGLI looks so expensive, especially as you get older. 

VGLI does look expensive when compared to SGLI.  That’s because SGLI is so cheap compared to any other life insurance available in the world.  The first thing you should do when looking for post-military life insurance is disabuse yourself of the notion that you’re looking for something that’s as cheap as SGLI.  It’s not going to happen, and it will never be remotely close.

As far as comparing VGLI to a commercial policy—I’m not going to lay out every single scenario.  When it comes to whole life insurance, your VGLI will probably be cheaper than a whole life policy for quite a while.  The premiums do go up a lot, especially as you reach your 60s or 70s.

This is where you need to determine how long you need life insurance…if you’re retired & financially independent, you might not need life insurance to replace your income after a certain point.

My Personal Experience

I can’t state the case for everyone, but I’ll use the information that I found when I was shopping for insurance policies.  A whole life policy didn’t interest me.  However, I wanted to shop prices just to make sure.  I decided to use the whole life insurance estimator for one of the participating life insurance companies recommended by the VA Department.  At my age (age 41) and health, a $400,000 whole life policy would cost about $500 per month.  That comes out to $1.25 per month per $1,000 in coverage.

In comparison, I got a 30-year term, $1.5 million policy for about $2,200 per year, or less than $200 per month.  This amounts to about 12.2 cents per month per $1,000 in coverage.  Dollar for dollar, I was able to obtain coverage under a term life policy for less than 10% of the cost of a whole life policy.

To put it into perspective, if I used the whole life quote, $1.5 million would cost me $1,875 per month, or $22,500 per year.

VGLI is probably going to be somewhere in between for most people.  As you can see below, a 41 year old would pay $68.00 per month.  This amounts to 17 cents per month per $1,000 in coverage.

VGLI Premium Rates

 

This amount is 40% more than a term policy, but still 14% of the cost of a whole life policy.  Even if I were 60, I would still pay less for VGLI coverage than I would for the whole life policy.

As you age, though, this premium does go up.  For a 50 year old, this premium becomes $144, or 36 cents per month per $1,000.  By the time you reach 60, this premium becomes $1.08 per month per $1,000.  If you happen to need VGLI into your 70s, the premium is $2.30 per month per $1,000.

If you feel like you need insurance into your 70s & 80s, you might consider a whole life policy.  But you should really think about that early on.  Most likely, if you play your cards and are financially independent, you probably won’t need life insurance that late in life.

How do I make the right decision?

Figure out your insurance strategy up front.  Do your due diligence and figure out if you can qualify for a term policy.  If you can, secure it before you even think about filing a VA disability claim.

Figure out how long you need insurance.  If you plan to retire in your 60s, really think about whether you need a permanent policy.  Odds are, you probably don’t.

If you’re leaning towards whole life, you should REALLY think about what you’re getting into.  It’s expensive up front, and you might find that you’d rather put your money elsewhere.

Conclusion

Making the right decision can be difficult, and for professional advice, you might want to hire a fee-only financial planner who can help you figure out your financial situation so you can make the decision that’s right for you.  When you’re talking to a fee-only planner, you can rest assured that the planner’s compensation is unbiased and in YOUR best interest.

***Please note that due to COVID-19 VGLI enrollment criteria has changed. Due to the economic downturn you now have an extra 90 days. Instead of having 120 days past discharge, you have 330. Additionally he time period to apply for VGLI with proof of good health is extended to 1 year and 210 days following separation.  This extension is good through June 11, 2021. ****

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About Forrest Baumhover

Forrest Baumhover is a Certified Financial Planner™ and financial planner with Lawrence Financial Planning, a fee-only financial services firm. As a retired naval officer, Forrest helps veterans, transitioning servicemembers and their families address the financial challenges of post-military life so they can achieve financial independence and spend more time doing the things they love.

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  1. Melissa Shreur says

    Thank you Forrest for point out these important considerations. It’s my concern that most military members and their families are not aware that the conversion benefit has to be whole life with these participating companies. This is just a topic not on their radar until it comes time to transition.

    If more service members would be proactive and supplement their coverage ahead of time they would not only have an alternative option but provide enough life insurance protection while serving. Granted the SGLI and additional death benefits may be all they want based on their goals.

    It’s my understanding the conversion into a whole life policy is offered at standard rates. If a service member is healthy enough at separation from the military and really wants a whole life the conversion inst their best option. It’s likely they could qualify for preferred best or preferred pricing whole life on the market with any carrier of their choosing. I don’t recommend whole life either. In most cases term is the way to go. Unless someone really feels like over paying for life insurance protection.

    Military spouses have a conversion privilege as well with participating companies but still only a whole life offered at standard pricing.

    • Forrest Baumhover says

      Hi Melissa,

      Thank you for your thoughts! It’s definitely beneficial for most folks to consider their insurance needs before they transition…many folks might find they actually need more than SGLI in the first place! While we seem to agree that term insurance is the best for most families, you could argue that VGLI provides much better rates, for a shorter period of time. In that case, you could think of it as a more convenient, slightly expensive term policy. If you combined $400,000 of VGLI with a longer term policy (like 20-30 years), it would have a similar impact as if you bought layered term policies.

      As you know, layered term policies are structured so that you can obtain more insurance in the near term, then let terms lapse as your insurance needs go down. For example, someone with $1.5 million in insurable need might only need $1 million 10 years from now, $500,000 20 years from now, and nothing in 30 years. In that case, it would be more affordable to purchase a 10-year, 20-year, and 30-year policy ($500,000 each). That way, you obtain the coverage you NEED, as opposed to paying for a 30-year term policy and over insuring yourself in the later years.

      It seems that a retiring family could use VGLI as the short term (10 years or less) version of that term policy, if their situation warranted it.

  2. Ben Willis says

    Can I convert my SGLI into a Commercial Whole Life Policy while I am currently serving? If so, how?

    • Forrest Baumhover says

      Unfortunately, SGLI conversion, whether to VGLI or a commercial policy, is only an option for transitioning servicemembers.

      However, the more compelling question would be why do you want to convert to a whole life policy on active duty when you are able to pay the lowest insurance rates available. Without debating the merits and drawbacks of a whole life policy (which I would most likely not recommen), you could obtain a whole life policy while maintaining your SGLI. Unless underwriting is a concern, you may very well be able to have both at nominal cost (the added cost of maintaining SGLI).

    • Forrest Baumhover says

      It might be, and definitely should be a consideration. However, I’ve had a lot of people write me from the point of view of insurability…what happens if you can’t qualify for a term policy? Since term insurance isn’t something you can convert SGLI to, this article was written for people who might not qualify for a term policy on their own.

    • Forrest Baumhover says

      It might be, and definitely should be a consideration. However, I’ve had a lot of people write me from the point of view of insurability…what happens if you can’t qualify for a term policy? Since term insurance isn’t something you can convert SGLI to, this article was written for people who might not qualify for a term policy on their own.

      • Stephen says

        Insurability is a real concern for some people; however most active duty personnel are easily able to overcome their insurability concerns by purchasing a whole life insurance policy that has a feature called an option to purchase additional insurance.

        This feature alone can make a whole life policy a better choice than a term policy, but its not right for everyone. Often the best strategy will include having both temporary (affordibilty) and permanent (living benefits, 1035s, cash value, etc.)

        I would think of financial advice like medical advice. You wouldn’t go have a potentially life altering procedure on the word of just one Dr. Wouldn’t you get a second opinion?

        One thing people like to do when they talk about term insurance is only look at the monthly premium and they assume because the premium is lower its cheaper. That’s not completely true unless they die before the policy’s term expires. If someone purchases a 30 year term policy and pays $100 per month ( its that high just to keep it simple), they will pay $36k in premiums. If they don’t die they have nothing to show for the 30 years of premiums (it is possible to get a policy that will return a portion of the premiums that were paid if the insured doesn’t die before the term expires).

        If a person had purchased a permanent policy that builds a gaurenteed cash value that person would have something to show for $36k that was paid in premiums as well as access to all of the living benefits and the person would have to go out and shop for a new policy when he is 30 years older and not in as good of health.

        Your best bet is going to be to consult someone who is actually licensed to sell insurance. Most states maintain public facing databases that allow the public to see if a person is a licensed insurance professional. I would also suggest checking on an investment advisors professionals licenses: Brokercheck.finra.org is a great resource and adviserinfo.sec.gov

        Happy learning.

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