Military Life Insurance: A Guide to Covering Your A$$
In this article, I am going to cover the four types of military life insurance you need to understand as a service member. For each type of insurance, I will cover what it is, when you might need it, pros, cons, and my ultimate thoughts on how I would utilize them.
This is an objective review, but you will definitely notice that I have some preferences as we roll through these. Also, it should be noted that I am not a licensed insurance broker, however, I believe that is an advantage because I’m not incentivized by the commission to push a certain type of insurance on you.
Life insurance is a great way to ensure your loved ones will be taken care of in the event of an untimely death on your part. That being said, if you mind your finances, and invest intelligently, you should NOT need life insurance for your entire life.
While there are some benefits to having life insurance at age 80, I would MUCH prefer to have my finances in order, and not be relying on military life insurance to take care of my family after the age of 60.
Servicemembers’ Group Life Insurance (SGLI)
What it is:
Servicemembers’ Group Life Insurance offers low-cost term life insurance to eligible service members.
When you might use it: While active duty. This is the $400,000 life insurance you receive upon entering the military.
This is a great plan for service members!
– Coverage up to $400,000 – in $50,000 increments
– 120 days of free coverage from the date you leave the military
– Extension of free coverage for up to 2 years (if you’re totally disabled) when you leave the military
– Part-time coverage (if you’re a reserve member who doesn’t qualify for full-time coverage)
– You only pay $3/month for every $50,000 in coverage, which is extremely cheap!
The biggest con I have with SGLI is that your insurance ends (soon) after you exit the military. After 120 days to 2 years, you will either have no life insurance or need to be accepted into a new policy.
Take the full $400,000 SGLI benefits. You are in a dangerous occupation, and $25/month is incredibly affordable!
Veterans’ Group Life Insurance (VGLI)
What it is:
Veterans’ Group Life Insurance allows you to keep your life insurance coverage after you leave the military, for as long as you continue to pay the premiums. This is similar to SGLI coverage after you exit the military.
When you might use it: You can apply for VGLI within 1 year and 120 days from your discharge, for up to the amount of coverage you had through SGLI.
You can apply through the Office of Servicemembers’ Group Life Insurance (OSGLI), using the Prudential website.
– Coverage up to $400,000, based on the amount of SGLI coverage you had when you left the military
– You can also increase your coverage by $25,000 every 5 years – up to $400,00 – until you’re 60 years old
– If you sign up within 240 days of leaving the military, you won’t need to prove you’re in good health
– If you sign up after the 240-day period, you’ll need to submit evidence that you’re in good health
– VGLI premium rates are based on your age and the amount of insurance coverage you want. That means your insurance costs will increase as you get older.
- Because of this, VGLI might make sense immediately after exiting the military but could get costly as you age.
- For $400,000 worth of coverage, the lowest monthly premium is $32, for veterans age 29 and below
- For $400,000 worth of coverage, the highest monthly premium is $1,840, for veterans age 75 and over
If you’re young and have medical conditions that would make you expensive to insure, or uninsurable, through most life insurance policies, VGLI is great!
If you’re healthy, I would absolutely look into a term life insurance policy elsewhere. I’m paying just under $40/month currently for a policy I recently enacted.
That is about the same cost as what VGLI would be for my age, and I have $500,000 ($100,000 more) in coverage, and my premium will not increase as I get older.
VGLI gets expensive as you age, and I would probably not recommend it unless you have medical conditions that other insurers won’t accept.
Term Life Insurance
What it is:
Term life insurance is a type of life insurance that guarantees payment of a stated death benefit if the covered person dies during a specified term. After that term expires, the policyholder can renew it for another term, convert the policy to permanent coverage, or allow it to terminate.
When you might use it:
You can use term life insurance at any time, provided that your health allows you to be insured. The younger, and healthier, you are when applying for a policy, the lower your monthly premiums will be.
– Term life insurance is the most affordable coverage type. My new policy is good for a 30-year term, with $500,000 coverage, and costs less than $40/month! (results will vary, you could get even better coverage!)
– Most terms expire before the company has to pay a death benefit…so hopefully you’ll never need this policy
– Covers you long enough to get your finances and retirement squared away. After that, you don’t really need a life insurance policy
– Great for young people with children in order to ensure the children are taken care of in the unlikely event of an early death for the parent(s)
– Straightforward and easy to understand policies
– If you are diagnosed with a terminal illness during the first policy term, you most likely won’t be eligible to renew after the policy expires. Some policies due offer guaranteed re-insurability, but this usually makes the original policy more expensive
– When you renew or convert this policy, you will be older. That means your premium will most likely be higher due to age, and/or medical conditions
– It isn’t easy to predict what your life will look like in 20-30 years, and therefore how long of a term you should get coverage for
– Does not build capital as whole life insurance does
– Term life insurance is inflexible. The term, and death benefit, are generally set in stone
Term life insurance is a great way to ensure you are covered until retirement. My wife and I both have a term policy in place until we are 60. We are confident, that if we continue to invest there will be absolutely no need for life insurance after the age of 60, for either of us.
Term life insurance is so much more affordable than whole life insurance (like 10-15 times more affordable), and you can invest the difference to build wealth!
I recommend that you lock in a term life insurance policy about a year before you exit the military. That way, any medical issues you are going to bring up for your VA claim may not be documented yet, which means you’ll be much more insurable.
If you claim a lot of medical issues on your VA claim, you will be much more expensive to insure. This isn’t to say you shouldn’t claim every medical issue your rate (you absolutely should). You should, however, secure life insurance 6-12 months before that (even though you still have SGLI) to ensure you get a less expensive monthly premium.
Whole Life Insurance
What it is:
Whole life insurance provides coverage for the remainder of the insured’s life. In addition to providing a death benefit, whole life also contains a savings component where you may build cash value over time. Whole life is also known as traditional or permanent life insurance.
When you might use it:
You can use whole life insurance at any time, provided that your health allows you to be insured. The younger, and healthier, you are when applying for a policy, the lower your monthly premiums will be.
– Lasts for a lifetime, rather than an agreed-upon term
– Provided you maintained the premium payments, whole life insurance will pay your death benefit without an expiration (or term) date
– Provides a savings component where cash can build over time
o This savings component can be invested. The policyholder can access this money while alive by withdrawing, or borrowing against, the cash value of their life insurance
– Fixed premiums and you never have to recertify your health or worry about premiums increasing
– There are tax advantages for the money invested in cash value whole life insurance policies
– Extremely expensive when compared to term life insurance
o As a personal example, my wife and I took out whole life insurance policies in 2016. Her policy cost around $50/month and insured her for a whopping $50,000. Fast forward to 2020, and we switched to term life insurance (now that we have done our own research, instead of just listening to a salesman). Her new policy costs around $20/month, and covers her for $500,000 until she is just about 60.
o We received ten times the insurance coverage, for less than half the monthly premium. Oh, and the cash value of her account (after four years and over $2,400 in premiums) was less than $500.
– It takes a long time to build the cash value of your account. Unless you superfund (dumping a lot of cash in at once) it will take years to build up the cash value of this policy
– Mediocre investment returns
– Very complicated and difficult to understand. One of the biggest turn-offs for me about whole life insurance, and “infinite banking” as it is called when you borrow money from the cash value of your life insurance, is that nobody has ever been able to explain it to me concisely
o I figure, if a concept is so complex that the professionals can’t break it down, I don’t want to use it as an investment strategy
– The insurance industry does not have a fiduciary responsibility to look out for your best interest.
– The commissions for whole life insurance sales are much larger than term life. For this reason, insurance agents are incentivized to push whole life. Also, no insurance broker has ever been honest with me about the difference in commission between term and whole life (buy fee-only financial advisors have encouraged me to use term life).
Whole life insurance is complicated, expensive, and unnecessary. I would MUCH rather have a policy that costs 10% of what a whole life policy might cost, and invest the difference.
Whole life insurance and the infinite banking concept seem like they could be smart if you A) can superfund the account to build cash value immediately, or B) have the cash to burn and want to receive some tax benefits.
I would also argue that if you are well enough off that you could superfund a whole life insurance policy, you probably don’t need life insurance that will exist indefinitely. You would (theoretically) be able to provide for your family without having an expensive insurance policy.
I’m not a huge fan of whole life insurance policies because they are extremely expensive, and insurance brokers are highly incentivized to push whole life (which means it is extremely lucrative for the company). They are also complicated, and I think you can do much better by investing the money left over from the smaller premiums of a term life policy.
My friend Robert Farrington wrote an article that broke the term vs whole life debate down pretty simple and really helped solidify my decision. A lot of articles you see about this are written by companies that provide whole life insurance. That means they are inclined to be less objective than this article is.
Military Life Insurance
Make sure that you and your family are protected with the proper life insurance while in the military, and after. It is important to understand these military life insurance options. Keep in mind that often, the best insurance is to become wealthy enough that you can self-insure!
Here is an older article I wrote with additional information about military life insurance options.