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Members of the military have access to inexpensive life insurance. Service members’ Group Life Insurance (SGLI) costs just $312 per year for the maximum $400,000 death benefit. But that coverage expires 120 days after you leave the military. During the transition, you can convert your policy to Veterans’ Group Life Insurance with no medical examination and proof of insurability.
When members of the military retire or leave the service, the loss of Serviceman’s Group Life Insurance (SGLI) coverage creates a large gap in life insurance coverage for a family. There are a lot of great aspects of SGLI for members of the military and it has provided the death benefit for several beneficiaries of our nation’s heroes for the last several decades. SGLI has a very generous maximum death benefit of $400,000 and recently added a Service Death Gratuity of $100,000 that is paid within 48 hours of an active service member’s death. The $500,000 coverage is provided to the service member and a maximum of $100,000 in coverage is offered to the spouse.
When a member of the military leaves the service there are basically 3 options for continued life insurance coverage:
1) Purchase Veteran’s Group Life Insurance (VGLI). See link for price tables. http://www.benefits.va.gov/insurance/vgli.asp (expensive)
2) Purchase a conversion commercial whole life policy under pre-negotiated rates administered by the Department of Veterans Affairs. http://www.benefits.va.gov/INSURANCE/converting.asp (See the list of current contracted carriers below) (expensive)
3) Purchase separate policies out in the commercial marketplace.
The following is a listing of Insurance carriers that are contracted by the Department of Veterans Affairs from July 1, 2015 through June 30, 2016 to provide private whole life policy conversions from SGLI coverage.
Amalgamated Life Insurance Company – 800-315-9178 – www.amalgamatedlife.com
American Fidelity Life Insurance Company – 850-456-7401 – www.amfisite.com
Bankers Life and Casualty Company – 800-621-3724 – www.bankers.com
CICA Life Insurance Company of America – 800-880-5044 – www.cicalife.com
EMC National Life Company – 800-232-5818 – www.emcnationallife.com
Farmers New World Life Insurance – 800-238-9671 – www.farmers.com
Life Insurance Company of Alabama – 800-226-2371 – www.licoa.com
Metropolitan Life Insurance Company – 800-638-5433 – www.metlife.com
New York Life Insurance Company – 212-576-7000 – www.newyorklife.com
Northwestern Mutual Life Insurance Company – 414-271-1444 – www.northwesternmutual.com
Prudential Insurance Company of America – 877-725-4872 – www.prudential.com/giconversions
SBLI USA Mutual Life Insurance Company – 877-725-4872 – www.sbliusa.com
Security National Life Insurance Company – 801-264-1060 – www.securitynational.com
Transam Assurance Company – 850-456-7401 – www.twasite.com/military
Trans World Assurance Company – 650-348-2300 – www.twasite.com/military
The first two options listed above are the two more expensive options but may be used if a service member or spouse might have trouble getting insurance due to health issues. Keep in mind that it’s best to work with an independent life insurance agent in order to get the latest best practices in placing certain medical issues with certain carriers for the best price. Insurance carriers have different risk tolerances and you can benefit by working with an agent that’s aware of these risk tolerances. An independent agent has access to a large number of carriers and can shop these carriers by how well they grade certain medical risks and will ultimately get you a price that beats the competition. Therefore option three might be the most cost efficient option depending on the insurability of the service member and spouse. If you do not have commercial coverage in place – by all means keep a policy in place and use the VGLI or conversion option until you can get the most cost efficient policies in force. Of course life insurance can be obtained through your next employer but when you leave that employer, you’ll be back in the same boat. It’s best to have at least a modest permanent life insurance policy with term policies to handle the times of increased need.
Purchase a Low Cost Term Life Insurance Policy or a Modest Permanent Life Insurance Policy Between the Ages of 35 and 49 to last Beyond SGLI
Looking at the above scenario reveals the need to have options well before leaving the military and having some redundant policies in force for life beyond the military and SGLI. That brings us to buying a layer of coverage somewhere between the ages of 35 to 49 that extends beyond SGLI coverage or even a modest permanent policy. In this age bracket one could purchase a $50,000 to $100,000 whole life policy at a reasonable price and have it for life. Another option might be to purchase a 30 year term and use shorter term riders. This is called laddering. This laddering technique saves on average of 5 to 15% because it only puts one policy in force while employing riders, therefore saving on the administration of separate policies. The additional term riders would be in place for the years when you need the additional coverage to handle the mortgage, bills, college education and then drop off in 5 year increments.
Consider a Permanent Life Insurance Policy that has Long Term Care Benefits
If you’re looking for options at retirement you might consider the purchase of a whole life / long term care hybrid product. These products are a combination of life insurance with long term care benefits or an annuity with long term care benefits. This product offers the ability to leverage assets, guarantee safety of principal, and provide tax benefits. Life/Long term care hybrid products are designed to provide a death benefit plus access to long term care benefits if needed. This is a good answer if you’re not comfortable with buying a stand-alone long term care insurance policy because it may never be used. With a hybrid, if the long term care rider isn’t used, a death benefit of more than the initial premium is passed to the beneficiary-tax free.
Just like regular policies, these products have cash values and a death benefit. However, in the event you qualify for extended care, there is a pool of money available, broken down into monthly maximums. Some products even offer optional riders which guarantee monthly benefits for your entire life or the life of your spouse. Life/long term care products come in several policy types and configurations. They each fit a specific need. Universal and whole life policies are available as well as single life or second-to-die policies.
2% of the death benefits paid in the United States are paid out of a term life policy
Statistics show that less than 2% of the death benefits paid in the United States are paid out of a term life policy. That may be why such policies are so cheap. They basically insure you when there is little risk that you are going to die. When you get older and really need the insurance, it then becomes cost-prohibitive to maintain. Consequently, the insurance gets dropped, and you have no insurance in place to protect your family when you die. There are financial planners who will argue you should “buy term and invest the difference.” On paper, it seems to make a lot of sense. It certainly made a lot of sense when interest rates and returns were a lot higher than they are today. But it only works if, in fact, you do invest the difference. Unfortunately, the “difference” is rarely invested in something that provides a meaningful return.