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 is perceived by many as bad karma – almost as if acknowledging the possibility of death somehow makes it more likely to occur. Common sense suggests, however, that this is definitively not the case. And not talking about or acknowledging the need for life insurance makes it considerably more likely that 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 there’s a different and much healthier way to look at paying for life insurance. 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.
Feeling a little better about the role of life insurance? If you’re in the military, there’s more good news. For less than $30 per month, you can secure $400,000 of Servicemembers’ Group Life Insurance (SGLI). There are, however, a couple of things you should understand about SGLI.
SGLI isn’t as much coverage as it sounds like.
In many cases, 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 (principal) intact and live off of the interest it generates. In that scenario, $400,000 won’t go nearly as far. Most financial planners suggest spending no more than 4% of your principal annually – meaning that $400,000 would likely produce only $16,000 in annual income.
You can’t take it with you once you separate.
When you separate or retire from service, you can’t take your SGLI with you. You can replace it with Veterans’ Group Life Insurance (VGLI), but the monthly premiums are substantially higher and increase every 5 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.
If you’re on active duty and you have the full $400,000 of SGLI, here are some additional steps you should consider taking:
1. Assess the needs of your survivors in the event of your death. Would they need money for final expenses? Funds to pay for children’s educational expenses? A lump sum to generate monthly income? If you’re not confident in doing this yourself, an experienced financial advisor can walk you through the process.
2. If it turns out that SGLI would not be enough to meet all of the needs of your survivors, consider filling the gap with a personal policy over which you have control – and that can help replace SGLI when you leave the military.
3. 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 that you will be able to secure additional coverage in the future, regardless of your health.