When it comes to life insurance for military families there has always been a status quo “right” way to do things. Falls right in line with other traditional financial advice.
Their intent is to provide a stable financial story for you for the rest of your life. But too often its just that, a story.
The most important thing to keep in mind is that insurance is all about the amount of cost required to protect a given risk. In the case of life insurance coverage for average active duty military members, the primary goal when looking at coverage options is to replace income in the event of death.
The false assumption is that because you are in active military service that you have a higher likelihood to die and therefore couldn't qualify for life insurance protection without supplemental coverage from the government.
But that isn't how life insurance is priced and qualified for. Rather, the biggest factor is the health status of an individual. And military members are the healthiest among us.
In this article we will ask why don't military term insurance leverage the regular medical exam requirement to keep prices lower.
Best Life Insurance Options For The Military Community
One great perk about serving in the military is that many aspects of civilian life are taken care of for you. This can include everything form medical exams the member's spouse and eligible children, to life insurance benefits such as SGLI coverage.
However, something that often isn't explained well is that servicemembers group life insurance is not free coverage.
Servicemembers Group Life Insurance (SGLI)
Servicemembers Group Life Insurance (SGLI) is the government-sponsored life insurance offered to military personnel during the period of active duty service. The cost of SGLI is $300/year for everyone regardless of age, and there is no health qualification for coverage.
The SGLI policy is a form of low cost group life insurance, but it does have some drawbacks. First, coverage amount can only be up to $400,000 and for most military folks that won’t be enough. Second, coverage will terminate upon retirement from the service. Finally, everyone pay the same price regardless of rank.
Life insurance for veterans with medical issues
If you are a veteran or family member of one who suffers from medical problems, you should understand how life insurance for veterans works and what to expect before you leave service.
Unlike with private insurance, life insurance policies for military are unique because:
- You can get coverage no matter what your health status is.
- You don't even need to go through the application process in person.
- Nor will you be required to provide blood and urine samples and other health related tests that would likely reveal your condition.
- Rates will not be affected if you have conditions such as diabetes, heart disease or cancer.
But this advantage ends when you leave the military and it becomes costly if you haven't found an alternative solution. We'll discuss that at the end of this article.
Life Insurance Through Veterans Affairs
Options for Veterans Group Life Insurance
Veterans Group Life Insurance (VGLI) is administered by the Veterans Administration. It replaces SGLI when the service member retires from the military. It requires no qualification if coverage is accepted within 240 days of service.
All of these plans and policies have their place. For certain individuals in certain circumstances, they can be good choices or even life-savers. But they all have significant drawbacks which we explain in more detail in this article about the costs of VGLI.
Public Life Insurance Plans
Regardless of when you plan to leave the military SGLI coverage will end when you leave active duty.
Term Life Insurance Benefit Is Not Lifetime Coverage
Term life insurance in the private market place does offer some advantages over SGLI and VGLI. Because you have to qualify, the younger you are and the better health you are in, the lower your premium rates and the higher your death benefit are likely to be.
However, there is no equity build-up in term life insurance for military, and like VGLI, the rates get higher the older you get. And unlike VGLI, which will go on for as long as you pay for it, term coverage ends when the term is up.
In your sixties or seventies, in the event you are even able to find another 20-year plan, the costs will be astronomical, and you may still very well outlive the term, leaving no protection or legacy for your loved ones.
“Term and Invest the Rest” Creates More Risk
Many financial planners and experts recommend using a 30-year term policy from a military-friendly company that can offer some cost savings. The idea, and this follows much of the Dave Ramsey philosophy, is to get term coverage for an amount to cover family expenses in the event of an untimely death, all the while saving and investing enough money successfully in the stock market so that your spouse won’t need any military life insurance. The monthly premium would stop at the end of the term life coverage.
The problem with this solution is that it makes several erroneous assumptions. No one advising that people should “buy term, invest the rest,” explains in what vehicles one should “invest,” nor in what amounts, nor how to weather a bear market. The “invest the rest” component is closer to wishful thinking than to an actual solution, due to the two wildcards we discussed above.
Regardless of one’s ability to successfully “invest the rest” over 30 years despite the alarming number of variables out of an individual’s control, this is money meant for living, not leaving a legacy, and there will be even more taxes paid by the heirs when the money passes to them.
Whole Life Insurance for Military Has A Costly Maximum Amount
In the 1990s, some financial firms catering to military and veterans began selling whole life insurance as a way to privatize the protection of a military pension, offering a permanent solution to estate planning, something that a 30-year term policy could not do.
These were typically offered in conjunction with retirement plans. At a high level, these plans are very attractive. They both provide a death benefit for the insured’s loved ones and allow them to leave a permanent legacy. At some point in retirement, the policy is paid up, and the insured no longer has to make payments.
This works much like a mortgage, you commit to making monthly payment for thirty years or more with the knowledge that if you need to stop paying for any reason, you lose the asset.
Also, do to the high internal cost structure of whole life insurance it is not possible to purchase the proper amount of death benefit needed to replace SGLI and the SBP.
There Are Alternatives to the Status Quo of Veterans Life Insurance
Here at US VetWealth, we have designed an alternative to the status quo military financial planning vehicles. Especially when it comes to life insurance for Military and Veterans.
Our solution offers both more equity growth and more liquidity that you can access while you're still alive. It offers a safeguard against negative market returns, and allows its owner to both comfortably fund their retirement and still be able to leave a legacy behind them when they die.
We call it the Spouse Benefit Plan.
Modern life insurance can provide the death benefit protection of a term policy while also producing an annuity stream much like the SBP; to be more accurate, it can provide an annuity stream much like the pension, because you can use it while the veterans is still alive!
The costs are significantly lower than VGLI, and the ROI is significantly higher than on a term insurance or whole life policy. Veterans no longer have to rely on the Survivor Benefit Plan and VA disability, or VGLI, or any of the other outdated status quo financial planning for military retirement vehicles.
--> If this interests you, then schedule a call with one of our advisors to learn more about the Spouse Benefit Plan.