The low-cost life insurance coverage issued to eligible members of the military goes a long way toward protecting the family members of those who serve our country, but the policy doesn’t always go far enough.
For some service members, it may also create a conundrum when they exit the military, despite the opportunity to convert their life insurance policies to either veteran’s or commercial coverage, said Hans Scheil, president of Cardinal Retirement Planning in Cary, North Carolina.
“Servicemembers’ Group Life Insurance [SGLI] is one of the government programs that really works,” said Scheil, noting the coverage provided to military members is more than many civilians have. “It’s a great thing to walk into the military and sign a bunch of papers and you are automatically enrolled in life insurance for a reduced premium, but the caution here is to also consider purchasing a separate policy that you keep for the rest of your life.”
Who qualifies for service members’ group life insurance?
SGLI is low-cost term life insurance purchased by the U.S. Department of Veterans Affairs from a commercial life insurance company for members of the uniformed services.
To qualify for the benefit program, you must be an active duty member of the Army, Navy, Air Force, Marines or Coast Guard. Commissioned members of the National Oceanic and Atmospheric Administration and the U.S. Public Health Service are also eligible, as are cadets or midshipmen of the U.S. military academies.
Others who are eligible include members of the Ready Reserves or National Guard scheduled to perform at least 12 periods of inactive training per year, members of the Individual Ready Reserves who volunteer for assignment to a mobilization category, and members, cadets, or midshipman of the Reserve Officers Training Corps (ROTC).
Members of the ROTC who do not qualify for full-time coverage may qualify for part-time coverage.
What you get
According to Benefits.gov, SGLI is available in $50,000 increments up to the maximum amount of $400,000. Service members are automatically enrolled for the maximum coverage of $400,000 unless they opt out or elect a reduced amount.
Monthly premiums are $28 per month for the full $400,000 coverage amount, plus an additional $1 premium for Traumatic Injury Protection (TSGLI) coverage.
Active duty service members insured under SGLI can also pay a higher premium for extra coverage for their spouse, regardless of whether their spouse is on active duty, retired, or a civilian. Dependent children are covered at no additional cost.
Family coverage (FSGLI) provides up to a maximum of $100,000 of insurance coverage for spouses, not to exceed the service members’ SGLI coverage amount, and $10,000 for dependent children. It is only available to members insured under the SGLI program, not to those insured under Veterans’ Group Life Insurance (VGLI).
If you are under age 35, the monthly premium for $100,000 worth of spousal coverage under FSGLI is $5. The cost climbs incrementally with age, reaching a maximum of $50 per month for those 60 and older.
When you retire
When they retire or leave the military, service members receive 120 days of free coverage. (If they are totally disabled and unable to work, they can receive free coverage for up to two years from the date of separation under the SGLI Disability Extension.)
Beyond that, service members who retire or are discharged from the military have two choices: They can either convert their full-time SGLI coverage to renewable term insurance under the VGLI program or to a commercial (individual) life insurance plan at standard premium rates with one of several commercial insurance companies. The commercial policy must be a permanent policy, such as whole life insurance or universal life insurance.1
If they choose to convert to VGLI, they must do so within one year and 120 days from their discharge. Benefits.va.gov suggests that veterans who submit their application within 240 days of discharge need not submit evidence of good health. Thereafter, they must answer health-related questions.
For those who decide to convert to a commercial policy, they must do so within 120 days of their separation from the military. According to Benefits.va.gov, eligible policyowners need not provide proof of good health.
Supplemental life insurance coverage
Scheil suggests members of the military who are covered by SGLI or VGLI at least consider purchasing an additional life insurance policy on their own, to ensure that their families are protected in the event they should die or become disabled.
The earlier they lock rates in the better, he said, as premiums for both permanent life insurance and term coverage are generally far lower the younger you are.
How much coverage you need on top of your government-sponsored life insurance depends on your unique financial picture.
MaRico Tippett, a former Air Force pilot and lieutenant colonel with the Arizona Air National Guard, who left active duty to become a financial professional with The Hopman Group in Tucson, Arizona, suggests the following methodology as a starting point: multiply your annual earnings by 25.
To arrive at a more tailored figure, he said, you can instead multiply your annual earnings by the number of years you would want that income to go to your spouse and kids (beneficiaries) if something should happen to you.
Better yet, break out the calculator and determine what the specific financial shortfall would be to your family if your income suddenly stopped. Factor in all kids under 18 and your specific financial goals, including paying off the mortgage, or sending your kids to college.
MassMutual’s life insurance calculator, is another helpful entry point.
“In most cases, you will find that SGLI is not enough,” said Tippett, noting the median price of single-family homes in the U.S. is roughly $241,000, according to the National Association of Realtors, and most families carry at least a little personal debt. “If you also have young kids between the ages of 3 and 12, you may find that the $400,000 the military provides does not go a long way. I usually recommend privately purchasing a supplemental policy.”
Tippett, who specializes in helping clients maximize military benefits, also said that the term life insurance coverage (which renews every five years) under VGLI is inexpensive in the early years, but can become cost prohibitive as you age.
For that reason, he said, he will not use VGLI himself when he officially retires from the military in the next few years.
Government-sponsored life insurance is an excellent military perk. To protect the ones they love, however, members of the uniformed services should take the time to determine whether they may need additional coverage.
“It pays to sit down with a financial professional,” said Tippett. “It really boils down to creating a plan and talking with someone who can help guide you through what your goals are for your family.” (Find a financial advisor)
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1 U.S. Department of Veterans Affairs, “Life Insurance: Convert SGLI, VGLI or FSGLI to a Commercial Policy,” 2013.