Life Insurance and the Military
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Life Insurance and the Military

August 6th, 2019 | 4 min. read

SGLI is a valuable military benefit, but is it enough?

When it comes to life insurance, there are a couple of universal truths: nobody likes talking about it and nobody likes paying for it. Talking about it seems like bad karma — and bad manners. But not talking about the need for life insurance makes it considerably more likely your survivors will not be prepared in the event of your unexpected death.

Paying for life insurance is viewed by most as uniquely unrewarding because there is no immediate benefit — and the only way to claim the future benefit is by dying. Talk about a downer. But the reality is this: what you’re really paying for is the peace of mind that comes from knowing that even if something does happen to you, the people you care about most in the world will be taken care of.

Fortunately, military members are eligible for low-cost term life insurance coverage under Servicemembers’ Group Life Insurance (SGLI). For less than $30 per month, you can secure $400,000 of SGLI. However, there are a few things about this coverage you need to understand.

SGLI is cheap, so don’t skimp on it.

When you’re automatically enrolled in SGLI, you are also automatically enrolled at full coverage. However, you have the ability to make changes to your SGLI coverage at any time. In fact, some service members who are single and have no dependents may feel tempted to decline SGLI, or at least reduce the amount of coverage in order to reduce their monthly premium. But in most cases, the low cost of SGLI makes keeping and paying for the full $400,000 a smart financial decision — even if it’s more coverage than you need at this stage in your life.

SGLI isn’t as much coverage as it sounds like.

For most families, the primary role of life insurance is to replace some or all of the income of the deceased. If it’s only necessary to replace that lost income temporarily, $400,000 might go a long way. But if the objective is to indefinitely or permanently replace the lost income, it may be necessary to keep the lump sum intact and live off the interest it generates. In that scenario, $400,000 won’t go nearly as far. Most financial planners suggest spending no more than four percent of your principal annually — meaning that $400,000 would produce only $16,000 in annual income.

You won’t get SGLI forever.

When you separate or retire from service, you can’t take SGLI with you. You can replace it with Veterans’ Group Life Insurance (VGLI), but the monthly premiums are substantially higher and increase every five years based on your age. At age 65, the same $400,000 of coverage that costs less than $30 per month for those on active duty costs about $600 per month for veterans. That’s a pretty good reason to replace it with a personal life insurance policy well before then.

You may need to fill the gap.

Ask yourself: “How much life insurance do I need?” Assess whether your survivors would need money for final expenses, children’s educations or to pay off the mortgage. What about a lump sum to generate monthly income? An experienced financial advisor can walk you through this.

If it turns out SGLI wouldn’t be enough to meet the needs of your survivors, consider supplementing it with a personal policy over which you have control — and that can help replace SGLI when you leave the military.

When you’re young, you can lock in a low rate for permanent insurance.

Even if you don’t yet have any dependents and SGLI is more coverage than you need, consider purchasing a base amount of permanent insurance for which you can lock in a reasonable premium. That means you’ll be paying the same amount for your policy at age 50 as you are at age 25. Then, add guaranteed options to purchase additional insurance in the future. This can typically be done for only a few extra dollars per month and ensures you will be able to secure additional coverage in the future, regardless of your health.

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