VGLI vs. SBP: The Military Retiree Insurance Dilemma Explained

SBP vs. VGLI: What You Need to Know Before Making a Decision

When you first joined the military, life insurance probably wasn’t a pressing concern. Like most service members, you likely signed up for Servicemembers’ Group Life Insurance (SGLI) with little thought. After all, it was convenient and affordable at the time.

However, as you approach retirement, the questions start piling up:

• How do I replace SGLI?
• What is Veterans’ Group Life Insurance (VGLI)?
• What’s the Survivor Benefit Plan (SBP)?
• Do I need either—or both—of these programs?

This guide will help you understand the critical differences between VGLI and SBP so you can make informed decisions about protecting your family and your retirement income.

Understanding VGLI: What You’re Paying For

Veterans’ Group Life Insurance (VGLI) is marketed as a continuation of your SGLI coverage. While it sounds simple—replace the “S” with a “V”—the reality is much more complex.

Here’s how it works:

• Group Pricing: VGLI premiums are the same for everyone within an age bracket, regardless of health, gender, or other factors. While this can benefit those with significant health issues, it also means paying more than necessary if you’re healthy.
• Age-Dependent Costs: VGLI premiums increase every five years. For example, a $31 monthly SGLI premium can skyrocket into hundreds—or even thousands—of dollars per month by the time you’re in your 60s or 70s.
• Limited Benefits: VGLI’s maximum death benefit is $500,000. While this might seem substantial, it only stretches so far when compared to the long-term financial needs of a surviving spouse or family.

Many retirees find that VGLI becomes unaffordable as they age, potentially leading to financial strain. Unfortunately, this realization often comes too late to explore more cost-effective alternatives, underscoring the need for proactive planning.

Decoding the SBP: An Annuity Disguised as Insurance

The Survivor Benefit Plan (SBP) is an entirely different animal. While it’s often compared to life insurance, SBP functions more like an annuity tied to your military pension:

• Automatic Enrollment: You’re automatically enrolled in SBP upon retirement unless you actively opt-out.
• Cost: SBP requires a premium of 6.5% of your gross retired pay. Over a 30-year retirement, this can amount to tens—or even hundreds—of thousands of dollars.
• Payout: If you pass away, SBP pays your surviving spouse 55% of your pension as a taxable annuity. However, if your spouse passes before you, the contributions are lost.

While SBP provides financial security for spouses, its lack of flexibility is a significant drawback. It only leaves a legacy for children or other beneficiaries and offers a return on investment if you pass away first. This inflexibility may not align with your financial planning goals.

Comparing VGLI and SBP: Key Differences

The Hidden Costs of Inaction

Both VGLI and SBP are presented as benefits, but they come with significant limitations:

1. VGLI: High long-term costs often make it unsustainable. Many veterans cancel their policies later in life, leaving them without coverage when they need it most.
2. SBP: While it offers peace of mind for your spouse, it’s inflexible and doesn’t allow you to build or leave a financial legacy.

Exploring Alternatives: More Control, Better Outcomes

At US VetWealth, we specialize in helping veterans explore alternatives that provide more value for their money. With customized financial solutions, you can:

• Protect your income while maintaining flexibility.
• Avoid the escalating costs of VGLI.
• Create a financial legacy for your family or charity.
• Invest in programs that provide benefits even if you don’t pass away.

You can gain greater control over your financial future by reallocating what you’d spend on SBP or VGLI.

The War Chest Strategy: A Smarter Alternative to SBP and VGLI

At US VetWealth, we believe in empowering military retirees with financial strategies that go beyond the traditional options of SBP and VGLI. One of our most popular solutions is the War Chest Strategy. This revolutionary approach gives you greater flexibility, control, and value for your hard-earned retirement dollars.

Here’s how the War Chest Strategy works and why it may be a better alternative for you and your family.

What is the War Chest Strategy?

The War Chest Strategy is a personalized financial approach to replace the Survivor Benefit Plan (SBP) and/or Veterans’ Group Life Insurance (VGLI). Instead of paying into programs that offer limited benefits and no flexibility, you redirect your funds into a private wealth-building vehicle that allows you to:

• Build wealth: Grow your assets over time through smart investments.
• Create flexibility: Access your money when needed, not just after a specific event like death.
• Leave a legacy: Ensure your wealth can be passed on to your children, loved ones, or charities.
• Retain control: Decide how and when the benefits are distributed based on your family’s needs.

Why Choose the War Chest Strategy Over SBP and VGLI?

Let’s break down how the War Chest Strategy compares to SBP and VGLI in terms of cost, benefits, and long-term impact:

Key Benefits of the War Chest Strategy

How the War Chest Strategy Works

1. Initial Assessment: We start by reviewing your financial situation, goals, and risk tolerance in detail. This includes analyzing your current SBP and VGLI costs and their potential long-term outcomes.
2. Customized Wealth Vehicle Selection: We identify the best investment or financial product to serve as your War Chest based on your unique needs. This could be a cash-value life insurance policy, a diversified investment portfolio, or a combination of options.
3. Funding the War Chest: Instead of allocating 6.5% of your pension to SBP or paying escalating premiums to VGLI, you redirect those funds into your War Chest. This ensures that every dollar you invest is working to grow your wealth.
4. Ongoing Management: We provide ongoing guidance and adjustments to ensure your War Chest continues to meet your needs as your financial situation evolves.

A Real-Life Example of the War Chest Strategy in Action

Meet John and Sarah:

• John is a retiring Lieutenant Colonel with a $6,000 monthly pension.
• Instead of opting into SBP (which would cost $390/month for 30 years, totaling over $140,000), John chooses the War Chest Strategy.
• He reallocates the same $390/month into a private wealth vehicle that grows at an average annual return of 5%.
• Over 30 years, John’s War Chest has grown to over $300,000 in cash value—more than double the cost of SBP.

Sarah can access these funds as a tax-free lump sum or periodic withdrawals when John passes. Any remaining balance can be left to their children.

Is the War Chest Strategy Right for You?

The War Chest Strategy isn’t a one-size-fits-all solution. It’s designed for retirees who:

• Value flexibility and control over their finances.
• They want to leave a legacy for their family or charity.
• Are proactive about planning for life after the military.
• Desire alternatives to the limitations of SBP and VGLI.

If this sounds like you, it’s time to explore a more innovative way to secure your family’s financial future.

Get Started with the War Chest Strategy

Your military retirement marks the beginning of a new chapter. With the War Chest Strategy, you can transition with confidence, knowing your financial plan is tailored to your needs.

Download the Free Military Retirement Guide or Schedule a US VetWealth Complimentary Strategy Session – Intake FormConsultation with one of our experts to see how the War Chest Strategy can work for you.