June 8, 2020

How To Avoid High VGLI Costs As A Veteran

What You Probably Don’t Know about VGLI Costs

Service Members Group Life Insurance (SGLI) is the government-sponsored life insurance provided during active duty military service. SGLI coverage ends with active duty. After service, the standard options for Veterans Life Insurance death benefit coverage is VGLI, which is administered by the Veterans Administration and is offered to veterans as a replacement for SGLI. There is no qualification required if coverage is accepted within 240 days of service, which makes it a good option for the service member with a life-threatening disability who is thus unable to qualify for privatized life insurance. 

For most retiring service members, considering the cost of VGLI has some definite disadvantages:

  • The VGLI death benefit is capped at $400,000. This is a relatively small amount when you consider that many veterans and their families have lifestyles in the $100,000 a year range.
  • The lack of a health qualification requirement is not an advantage to a veteran who is still young and in good health, who likely can qualify for a higher death benefit at a lower premium rate on the private market.
  • Like SGLI, VGLI costs are the same fixed cost for everybody. However, the base cost of VGLI (which starts at $800/year) is much more expensive than SGLI (which is a flat $300/year for the active duty service member).
  • Not only is the base VGLI costs significantly higher than SGLI, the cost of VGLI goes up every five years. You can calculate exactly how much you will be paying into VGLI as you get older by referring to the cost table provided by the government.
  • When the insured gets into their sixties and seventies, when the probability of actually dying does go up, the costs are so astronomical that it’s unrealistic to expect that any veteran who’s living off their pension will be able to keep up with these costs. For more on this, watch this video.

VGLI costsVGLI cost chartVGLI cost chart

SBP & VGLI Costs Example – E7

As a point of comparison, the current cost for a healthy 70-year-old to get $1,000,000 20-year term life insurance policy is $1800/month. Expensive? Absolutely, but still a way better deal than VGLI costs, which offers a death benefit of only $400,000 for $920/month.

VGLI and the Survivor Benefit Plan (SBP)  are rarely discussed in the same conversation. This is a huge problem in regards to making the best decision about Military Life Insurance.  The SBP is a form of life insurance that is designed to provide a basic level of support in the event a retired veteran predeceases their spouse. It is offered without qualification to all retiring veterans. Rather than paying out a lump sum to the beneficiary like most life insurance policies, the SBP pays a portion of the deceased veteran’s retirement pay each month, for the remainder of the surviving spouse’s life.

When VGLI and the SBP are not discussed at the same time, decisions about whether or not to accept them both are made largely in isolation from each other, causing fragmentation in what should be a single conversation about the best wealth-planning strategy for securing each individual veteran family’s financial future.

Finally, retirees going through their disability screenings as part of the retirement process are told to make sure that they convert their SGLI to VGLI. At the same time most are being told that they have some level of disability, they are also sold that there are no underwriting requirements for VGLI. The underlying implication of this is that the retiree should elect to pay VGLI premiums because he or she may not qualify for other life insurance for military options, which is simply not true for many veterans.

Many career service members accept VGLI, thinking that it is a better option for them than going through the underwriting process to purchase insurance on the private market. The great irony of this is that while it is administered by the VA, VGLI is actually run by a third-party contracted insurer (Prudential), who is profiting off of the government’s SGLI and VGLI programs.

The VFW Lawsuit

Apparently, they are profiting a LOT. In fact, a class action lawsuit was brought against Prudential for its administering of the SGLI program. The case was settled in December 2014 for nearly $40 million. The case alleged that Prudential did not pay death benefits to military service members, veterans and their families according to the laws governing SGLI and VGLI programs. In short, they were contriving to keep veterans life insurance death benefit payouts within their own financial portfolio so that they could earn interest on the money; effectively they were encouraging beneficiaries to leave their money with Prudential as they would put their money in a bank (called an Alliance account) and use a checkbook to access the funds as required.

While Prudential was earning a 4.8% return on the amount held in Alliance accounts in 2008, they were paying the account holders only 1% in interest. In spite of a motion filed by the Veterans of Foreign Wars (VFW) several years ago, all of the documents pertaining to the case have yet to be released.

If your insurance options are going to be on the private market anyway, then why not take advantage of  being young and in good health to qualify for a better rate? And why not shop around for the very best deal you can get with regards to the return on your investment?

Although you probably won’t hear about it at your retirement briefings, there are other options available to provide financial security to veteran families.

Here at US VetWealth, we have designed an alternative to the SBP and VGLI. Our solution offers equity growth (as interest is credited based on the S&P 500 performance, not the federal bond rate) and a lot more liquidity that the retiree 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  do what the SBP can’t possibly do, allow you to leave a legacy behind you when you die. We call it your Survivor Liberty Plan.

How To Avoid High VGLI Premiums

This completely new approach using modern life insurance can provide the death benefit protection of a term policy like VGLI 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 the payouts are higher, and you can use it while the veteran is still alive. Further, after 30 years, the costs are significantly lower than an SBP, and the ROI is significantly higher than on a term insurance or whole life policy. It also costs less than the fees involved in typical TSP, 401k, mutual finds, or other retirement plans that come along with money managers all taking a cut of the investment, regardless of the plan’s performance.

If this interests you, then click here to learn more about the Survivor Liberty Plan.

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