Life Insurance For Military Retirees: How to Prepare for the Unknown

Prepare Financially for the Unexpected

Conversations around retirement planning typically revolve around money and life insurance for military retirees. How much money will you need to live on? How much will you need to save? How much income will your savings generate? Will you have enough? This focus on money tends to steer conversations with the typical “financial advisor” in somewhat dubious directions, each one claiming to have a better collection of funds, or a better track record for choosing high-performing funds, than the others. 

Money is important. In fact, money is essential. But in this post, I am not going to talk about money as money, I’m going to talk about money through the lens of something that’s more important than money: taking care of yourself and your loved ones. 

Losing the family breadwinner or the need for long-term care for an aging family member can quickly eat through a family’s savings and destroy the possibility of being able to stop working in your sixties or seventies if you aren’t prepared to deal with these challenges. It can also destroy the possibility of being able to leave a legacy. Essentially, we’re talking here about dealing with the unknown and the unexpected, and when it comes to dealing with the unknown and the unexpected, we’re talking about insurance. Military Life insurance is intended to provide financially for loved ones in the case of the insured’s sudden, unexpected death. Long-term care insurance is intended to provide for the costs of caring for yourself or for a loved one who is no longer able to take care of themselves. 

Traditional Private Life insurance for Military Retirees

The purpose of life insurance for retired military is to mitigate the financial shock of suddenly losing the family’s primary source of income. Term life insurance is coverage that lasts for a specified period of time. At the end of that period, coverage ends. Whole life insurance (also called permanent life insurance) does not have a term. 

Life insurance companies are businesses, which means that they exist in order to make a profit. Every time they have to pay out on a policy, typically hundreds of thousands of dollars at a time, this represents a loss to them. For that reason, insurance companies don’t just cover anyone and everyone; you have to “qualify” for life insurance. In order to get coverage, you need to be in reasonably good health and have as few risk factors as possible (like smoking), because the more likely you are to die within the term of your term life insurance policy or before a whole life insurance policy is fully funded, the more likely it is that your policy is going to represent a loss to your insurance company.

This is why when you go to buy life insurance, the older you are, and the more health problems you have, the higher your premiums are going to be and the lower the death benefit that the insurance company will offer you. Young, healthy people, who are statistically less likely to die any time within two or three decades after purchasing a policy, are able to qualify for a higher death benefit at a lower premium, because chances are, that death benefit will never be paid or, in the case of whole life, the policy will have already been fully funded by decades of premium payments.

Whole life insurance does not end after a specified term, but most whole life insurance products haven’t changed in many, many years. It is simply ancient technology. Like the SGLI/VGLI, most whole life insurance products don’t reward you for being in good health. As alluded to above, they also require that you pay most of the cost up front; that's how you can eventually have it paid off. This makes these policies much like a mortgage, where you're paying a lot of the interest up front and the building of equity doesn't come for a long period of time. And yes, that equity can be accessed tax-free later in life; but often, there's a loan provision stipulating that you have to pay the company in order to access your money, just like you would get a loan from a bank.

For active duty military and veterans, when we talk about Life Insurance for Military Retirees, we are usually talking about the Survivor Benefit Plan (SBP) and Service Members Group Life Insurance (SGLI)/Veterans Group Life Insurance (VGLI). 

How Survivor Benefit Plan Works

The SBP is a form of life insurance for military retirees that operates as an annuity. Instead of paying out a lump sum to the beneficiary like most life insurance policies, it pays out a portion (55%) of the member’s retirement pay each month until the survivor either passes away or is no longer eligible to receive the payments. It was designed to provide a basic level of support in the event a retired veteran predeceases their spouse. The SBP costs the same for everyone—6.5% of their pension, deducted automatically from their pension check—and is payable only upon the death of the insured veteran.

How SGLI and VGLI Work

SGLI is the government-sponsored life insurance provided for military personnel during the period of active duty service. The cost of SGLI is very low. It is $300/month for everyone, and there is no qualification for coverage. (VGLI) is administered by the Veterans Administration. It replaces SGLI when the service member retires from the military. There is no qualification required if coverage is accepted within 180 days of service. Much like the whole life insurance products described above, you are not rewarded with lower rates or a higher benefit for being in good health. The death benefit for SGLI/VGLI is a flat $400,000 for everyone. vgli premiums are more expensive than SGLI premiums, and they get more expensive every five years. You can see just how much more expensive by referring to the cost table provided by the government. By the time a retiree reaches age 75, the cost of VGLI is ,840 a month.

Long Term Care Insurance for Veterans

People are living longer. They are acquiring additional health costs that didn’t exist just a few decades ago, and not all of these costs will be covered by the VA and Medicare. The costs of long term care are going to vary depending on what kind of care is needed, but according to the 2016 national averages provided by, long term care costs can be not only significant, but astronomically higher than what most individuals are used to paying for rent or a mortgage during their working days:

  • $225 a day or $6,844 per month for a semi-private room in a nursing home 
  • $253 a day or $7,698 per month for a private room in a nursing home
  • $119 a day or $3,628 per month for care in an assisted living facility (for a one-bedroom unit)

This can amount to hundreds of thousands of dollars over the last years of someone’s life. Enter long term care insurance. Long term care insurance is designed to help pay for the things that most health and disability insurance policies won’t cover: Nursing home care, assisted living facilities, adult day care, in-home care, home modification, and care coordination. According to a Life Plans, Inc. survey done in January 2017, the average annual premium for a long-term care insurance policy is $2,727 ($227/month) for a benefit of $161 a day for a specific number of years that is stipulated in the policy.

Four years is common. Inflation riders are also available. No doubt that $161 a day is a huge help, but what about the other $64 a day a family might need to keep a loved one in a semi-private room in a nursing home? And what if that loved one outlives those four years? What if they live for six years in the nursing home? Or nine years? Long term care insurance is certainly better than nothing, but it’s far from being able to completely put one’s mind at ease when it comes to paying for oneself or for loved ones when independent living is no longer possible.

There’s no option to leverage the SBP death benefit to help with long term care costs. Neither can the SGLI/VGLI or term insurance policies be tapped to pay for nursing homes or assisted living. Whole life insurance policies can be a little better, but most whole life insurance policies have not kept pace with the modern world, and they don’t offer the advantages that more innovative modern policies do. 

Consolidate Your Military Financial Planning with the Private Pension System

Here at US VetWealth, we offer a financial planning for military retirees options that not only provides a death benefit and solves the problem of funding retirement, but that also give you significant equity growth that can be tapped to pay for long term care costs while you are still alive. We call it a private pension account.

Although this new, modern approach to privatizing traditional military and private insurance options has been around for a few years, few financial experts and professionals are aware of it or its advantages. The key differences between the Private Pension System and what most think are the only other solutions (SBP, term life insurance (SGLI/VGLI), whole life, and long-term care insurance) are flexibility and control

  • Equity growth and protection. You are able to both capture and lock in the growth offered by the securities market without the value of your policy being negatively affected by market corrections. The worst-case scenario market rate of return in any circumstances is zero, meaning you get to keep all of your market gains, but you don’t experience market losses; during any downturns you simply experience zero growth on your intact principal.
  • Liquidity. There is no liquidity in either the SBP or VGLI unless the insured dies. There is liquidity for the retiree and the surviving spouse, and nobody has to die in order to be able to access it. The Private Pension System has something called the cash surrender value, which is the amount of fully liquid cash that's available to be taken in distributions without penalties or taxes. As long as a person keeps 10% of that number inside the plan, they can do whatever they want with the other 90%, which is comprised of a combination of contributions and the returns on invested dollars. 
  • Tax-free retirement. Retirees today risk losing a large percentage of their retirement savings in taxes as our government struggles to fund Medicare, Medicaid, and Social Security. In the same way that wealthy Americans leveraged the tax-advantages of whole life in the 1980s, modern life insurance leverages IRS code 72(t) to provide the same advantages and with greater flexibility and control, allowing you to access up to 90% of the equity of your Private Pension System tax free. 
  • Litigation protection. Being a party in, and especially losing, a serious civil lawsuit can also really eat through your assets. Because a permanent life insurance policy is not considered part of an estate tax bill or otherwise considered to be part of an individual’s net worth, it can’t be taken from you to pay for legal damages. In the event that you are involved in a lawsuit that ends badly, whatever other assets might be taken from you, you will retain complete control over and access to your Private Pension System and all of the advantages outline above.
  • Long term care. The Private Pension System offers a long-term care provision with which a living insured would be able to use a portion of their death benefit to pay for assisted living costs, even if those costs are paid to a close friend or family member. This provision is a game-changing solution that can mitigate the risk of a veteran being forced to liquidate their hard-earned retirement funds to pay for health care costs before they are able to qualify for Medicare, or to pay for long term care costs that Medicare and Medicaid don’t cover. With a Private Pension System, the veteran can avoid the cost of SBP and ensure their own self-care and still have a large probability of leaving a lasting legacy for his/her heirs.

Don't wait to find out if you qualify!

When the topic of life insurance comes up during active duty service, it is usually about the SGLI, and the response is typically, “I’m good for insurance. I don’t have a family yet, and SGLI will take care of it for me when I do.”  This creates a tremendous risk of never being able to qualify for a privatized option in the future, should some medical issue come up during service. It is in everyone’s financial best interest to qualify for private insurance when they are young and healthy and not wait until they are in their thirties and forties and leaving service with a number of medical issues. SGLI ends with active duty, so using it as a safety blanket backfires time and again when transitioning service members are not able to qualify for any other life insurance options and have no choice but to take VGLI. This a shocking oversight with a costly outcome. 

In order to qualify for the Private Pension System, it is necessary to go through the application and underwriting process. Don’t let this concern you, even if you have a disability rating, use tobacco, are a pilot or Special Forces, have a pre-existing health condition, or use cannabis, none of things are automatically going to disqualify you. With regards to the disability rating, many retiring service members receive disability ratings from the VA for issues that are relatively minor and of no concern at all to life insurance underwriters.

Do VA Disabilities Prevent Me From Qualifying?  Nope.

There are many disabilities that are quite serious with regards to their effect on your daily life that don’t necessarily impact your potential lifespan, so it is worth the time to go through the underwriting process to see whether or not your disability will prevent you from qualifying. With regards to other possible concerns, it is possible to obtain a policy within a variety of situations. When qualifying during the underwriting process, the insurance company is making a determination of how much of a death benefit they should offer you based on the likelihood that they are going to have to pay out this death benefit.

Any impact that your physical condition or lifestyle may have on the amount of death benefit you qualify for should not prevent you from pursuing this option should you determine that it is the best option for your individual situation, because unlike only using a term life insurance policy, in which the only advantage is the death benefit, the Private Pension System is about much more than the death benefit; it’s about having a place to protect and grow your money and provide for the unknowns and the unexpected in your future, without risk of loss due to market volatility or taxes.

If you wait to find out if you qualify, there is a risk that something could pop up medically or you could be involved in some accident that might change your health circumstances. The qualification involves a simple medical exam and an application. When the results come back, and you know the Private Pension System is an option for you, then you take the time you need to do your research, and talk to us about your options, before making a commitment. Going through the qualification process DOES NOT commit you to buy the policy. Finding out that you are qualified DOES NOT commit you to buy the policy either.

Schedule a private pension account consultation today. Your family’s future depends on it. Our financial experts who understand the unique needs of military retirees can help you create a retirement plan that will provide for your loved ones long after you’re gone. Don’t wait until it’s too late. Protect your family now with life insurance tailored specifically for retired service members and their spouses.

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