VA Life Insurance and why it’s worse than you think!

Why is the VA Life such a bad insurance?

Well, the answer to that is fairly simple: because it’s a whole life insurance and the benefit is way too low – especially in this day and age. $40,000 is not enough to cover for much nowadays. Whole Life insurance is almost never (except for a few very niche cases for people with an $5m+ figure net worth, in which they use the life insurance policy as part of the inheritance strategy) a good investment. This has been one of the biggest marketing ploys in American history. You can read more on that topic in our big whole vs. term life insurance but here’s the short version of it: you’re paying too much money for too little of a benefit – especially if you’re younger.

And, on average, you will be on the younger side when you separate from active duty as only about 20% of the entire Active Duty members are aged 36 or older – with only 7.9% being older than 41 years (source: DMDC Active Duty Military Personnel Master File, September 2020).

Let’s do the math. This is why an alternative is much better than VA Life!

Let’s say you got in right when you turned 18, did your full 20 years and separated from Active Duty with the age of 38. Now, you can’t keep SGLI and want to find a replacement. VGLI is equally as bad of a choice, explained in this article, so you’re looking at VA Life.

Since you’re 38 years old and you would want the maximum benefit ($40,000) which means your monthly premium rate would be $81.60 or $968.40 annually (the VA gives you a slight discount when you pay annually). And you’ll live to the average life expectancy in the US – 76 years. This would mean you have to pay your premium for another 38 years of your life. That’s 38*$968.40 or $36.799.20 in total.

This means you could have just put that money into a savings account and have done nothing with it. BUT THE CASH VALUE I hear you saying. Yes, the cash value… Did you know that the cash value reverts back to the life insurance company once you pass away? Yes, you’ve read that right. Your family will not see a cent of the cash value, they only get the death benefit.

Now, what you could have done instead is taking that $968.40 per year and get yourself a term life insurance at a much, much higher death benefit and invest the rest into the S&P500 or with what interest rates are at the moment, into treasury bonds – one of the safest investments there is. At age 38 you can easily find a $250,000 – $500,000 death benefit term life insurance, for example here, starting at only $30/mo. This would leave with a bit over $50 per month to invest.

If you were to invest $50/month for the next 38 years into save treasury bonds, you can yield a 5% interest on that. Meaning you’d come out at $64,625.73 at the end. Or, if you’d want to take a bit more upside with you, you’d put it into the S&P500 at roughly 9% annual return. That would leave you with $169,577.87.

Either way, you’re far exceeding the $40,000 you’d get from the VA Life insurance for your family AND you will be covered for a much larger lump sum in between.