Do Service Members Need Life Insurance?

Life insurance is one of the most important components of your personal financial plan. Unfortunately, life insurance is poorly understood, and breadwinners’ mistakes invariably cause great financial hardship for their survivors. The primary purpose of life insurance is to protect your survivors from the adverse financial consequences of your premature death.

If service members have no survivors, then it’s unnecessary to buy life insurance beyond the amount needed to pay for any outstanding debts or settle the estate.

If service members are married or have young children, then it’s prudent to have life insurance to insulate the family from financial disaster. service members who want to marry or have children soon should explore life insurance options.

How Much Life Insurance Do Service Members Need?

The general idea in determining life insurance needs is the estimate the family’s actual financial situation in the event of the policyholder’s death. Life insurance is not a measure of devotion to loved ones or a monument to self-importance. It is insurance in case of premature death, and it should be used to protect dependents against undue financial hardship.

If a service member is not alive to provide for his or her family, insurance coverage should be sufficient to enable them to live comfortably. service members should determine the expenses survivors would incur in the years following their death and the income they will receive. By matching income with expenses, policyholders can easily see any short-falls (there may be none) that are best covered by life insurance.

Plan for a basic monthly income for the family, plus additional needs such as education for the children, special medical care for predictable problems, and a reserve for emergencies. As life changes, some of the needs disappear. For example, if the policyholder’s children are grown and through college, there is no need to leave money for the children’s education. Thus service members need to reevaluate insurance needs periodically to make sure the survivors’ situation hasn’t changed. In any case, there is never a requirement to make the policyholder’s family wealthy upon his or her death; buy only the coverage for identifiable needs.

The first step is to estimate the monthly expenses the policyholder believes his survivors will face. If you don’t know where to start in estimating these expenses, a good rule of thumb is two-thirds of your present monthly income for those years when children will be at home, and one-half after they have left.

What Type of Policy Should You Buy?

Currently, an active duty service member may elect to take up to $250,000 of coverage for $.65 per month per $10,000 of coverage, regardless of age. This is very inexpensive insurance for older officers and noncommissioned officers. In effect, the large numbers of young service members make possible low premiums for the older service members.

For this reason, and because it is convertible after service members leave the service, SGLI should probably be the basic building block of a military family’s insurance program. However, military credit unions may offer a better policy at less cost than SGLI.

There are three main types of life insurance:

  • Variable – Has a flexible structure designed to allow greater return on the savings portion of the policy.
  • Permanent – Premiums are paid until your death but also build savings. This type of life insurance offers guaranteed premiums and guaranteed cash values. Some types offer cash value growth driven by the equity markets. While premiums are higher than you initially would pay for the comparable amount of term insurance, over time the permanent life insurance cost may be lower than term insurance.
  • Term – Lasts for a specific period; has no savings component. Term life offers the lowest initial premium expense. Over time, however, term insurance premiums can increase significantly. In the long run the cost may even surpass the cost of permanent life insurance.

Within these major categories, there are many variations that will allow you to meet your life insurance needs.

The Right Life Insurance for the Military

Confused about life insurance — whether you need it, what kind, how much and the like? So are a lot of people in the military. While the military provides you with Servicemembers’ Group Life Insurance (SGLI) coverage, that may not be enough for some people. To make those decisions easier, we’ve boiled it down to the basics.

Confused about life insurance — whether you need it, what kind, how much and the like? So are a lot of people in the military. While the military provides you with Servicemembers’ Group Life Insurance (SGLI) coverage, that may not be enough for some people. To make those decisions easier, we’ve boiled it down to the basics.

1. Is there a “war clause?”

A little known fact about life insurance policies ? some don’t pay if you die as a result of war. For members of the military, this is a significant issue. When looking for a life insurance policy, make sure that if you die as a result of combat duty, your family will receive the benefits of that policy. None of the life insurance policies at USAA contain a war clause.

2. Do you need it?

That’s the easy part. If you’re not responsible for anyone or anything, you probably don’t need life insurance. If you’re single, with no kids, and a lot of people aren’t counting on your income, you probably don’t need life insurance. Remember, the military already provides you with a maximum of $400,000 of life insurance. But if you’re married, have children, or take care of aging parents, SGLI coverage is most likely not enough. It’s probably a good idea to get additional life insurance, as well.

3. Can I get it?

Members of the military have difficult and often dangerous jobs. Some military professions, such as like fighter pilots and paratroopers, are unable to receive life insurance simply because some companies feel their line of work is too risky. A good bet is to find an insurance company that understands the military, and will provide you coverage regardless of your military career.

4. Life (insurance) after the military

Planning to separate from the military? It’s a good idea to start shopping around at least two months ahead for life insurance. Your SGLI policy won’t be valid once you leave the military. It can take up to six weeks to get a life insurance policy, so don’t cancel your SGLI until your new policy has been issued and the first premium paid.

Coverage for you

One option is to convert your SGLI to a five-year renewable term policy with Veteran’s Group Life Insurance (VGLI), which will provide up to $400,000 in coverage. If you’re in poor health, this can be a good value. But if you’re healthy, you might find a more affordable option with a commercial life insurance company.

Coverage for your spouse

Your spouse is an important part of your family’s financial security even if he or she doesn’t earn an income. Think of it this way: What would it cost to replace the childcare, meal preparation, and other household tasks your spouse does? If you had the $100,000 of coverage for your spouse under SGLI, you will not be able to convert it to VGLI once you separate from the military. The good news is: purchasing a relatively inexpensive life insurance policy can offset the expenses associated with losing a spouse.

5. How much insurance do you need?

There’s no magic formula but you can start by figuring out what you want life insurance to do for you. Do you simply want a policy to cover your funeral, debts, and unpaid medical bills? Or are you worried about providing enough college money for your children or retirement savings for your spouse if you die suddenly? Some experts say you should buy a policy that’s seven to 10 times your income. But that’s not the answer for everyone.

“Getting the right amount and type of insurance depends on your specific situation,” says Rob Schaffer, executive director of Product Management for USAA Life Insurance Co. “You need to ask yourself some key questions to decide what fits your budget and your circumstances. This is where talking to an insurance company or financial adviser can help.”

6. What kind do you need? How long do you need it?

Consider the kind of insurance you want: term or permanent life insurance. Buying term insurance is like renting a house, but the lease on the insurance policy can be used only for a specific term — 10 years, 20 years, or whatever you choose. Permanent insurance, on the other hand, generally has a higher premium than term, but lasts for a lifetime. The policy also builds cash value that you can borrow against or withdraw if you have an unexpected need for it.

Once you decide between term and permanent life insurance, you have one more step — sign up. Both types of life insurance have several options. Make sure you research the information, consult with a financial adviser, and choose carefully. But whatever you do, don’t delay. The cost goes up with age.

7. Shop around to find the right fit.

The first, and most important step, is to find the right policy for your budget and family’s needs. We make it easy to compare policies with our life insurance tool that matches you to multiple partners, so you can shop around … in one stop.