SGLI Cost – What Should Service Members Do?
SGLI cost is out of pocket for military members. They have the option of cancelling the coverage at any time and some service members wonder if it’s a good deal. While the SGLI benefit may be a low cost life insurance benefit for these military members, it isn’t free. Service members likely don’t think of it as a paid benefit because they don’t deal with the invoice but the policy is paid with their hard earned dollars. The funds go to Prudential towards the group plan that is administered by the Veterans Administration.
Is this benefit worth the cost? In this post, I’ll highlight some of the key considerations a service member must review in order make an informed decision about their life insurance costs in and out of the military.
As a life insurance professional it’s my job to help clients breakdown the insurance plans available to them. I help guide them on what makes the most sense financially depending on their individual situation and goals. I know it’s easy to judge me and say I am commission hungry because I sell life insurance plans! After 14yrs experience, I can take the criticism. Never does commission sway the advice I would offer a prospective client.
In case you don’t know, I am also a military spouse. My husband and I have the SGLI & FSGLI maximum coverage as well as additional plans on the private market. To us we don’t mind paying extra premiums to safeguard our insureability and financial wellness of our family.
Humor me for a few minutes and see what I have discovered as an industry professional on the hunt to see whether service members should do one of the following three things with their SGLI:
- Keep it as their sole plan and worry about coverage continuation at separation.
- Reduce the SGLI benefit to $100,000 and purchase a plan on the private market.
- Purchase a private market plan in addition to their maximum SGLI benefit.
My objective in this analysis is to breakdown what risks service members face by choosing the military plan(during and after service) as their only life insurance.
My intention is not to make the military benefit sound like a bad option but to simply present the facts as I know them from the insurance side of the world. You will see in this review what features make the SGLI cost worthwhile and find a few reasons to supplement it asap.
It is a concern of mine that many service members are simply uneducated of the risk factors they have for obtaining life insurance after the military. If they play their financial cards right there may be no need to maintain coverage by that time. The problem with that theory is that it is just a theory. Life does not always turn out the way we plan. In most cases service members will have a need for some level of life insurance coverage when they exit the military.
Replace or supplement?
Often service members aim to compare the SGLI cost with alternative private market plans. This is not necessarily my recommendation as an agent who works with military families. My recommendation is for service members to supplement their life insurance coverage in an effort to avoid the higher cost and risks associated with transitioning out of the military. That being said service members often consider replacing the SGLI because they do not like the idea of paying for two plans.
The bigger issue is that not all military families are adequately protected with the service member’s maximum $400,000 SGLI benefit. While purchasing an additional plan may be a higher cost, it offers the advantage of supplementing a families overall life insurance protection.
If a service member waits to shop the market and secure their extended coverage until they are separating from the service, the price and policy approval will be subject to a health review. The VA put out a small list of health conditions that are most commonly uninsurable when veterans look for alternative options. The most common issue service members who become veterans face is PTSD.
The SGLI & VGLI benefit plans do not contain a suicide exclusion. It is important to be aware that most all other private market plans have this exclusion. It usually is a two year period from the beginning of the policy. This should be a consideration as many veterans struggle with transitioning into the civilian sector. If they choose to wait to purchase a private market plan until their separation date and heaven forbid commit suicide within 2 years of the plan than the insurance company will not pay out benefits to the beneficiaries. The exclusion is a state law insurance carriers are obligated to include in their policies.
If a service member secures a private market life insurance policy at least 2 years before their separation date they need not be concerned with the suicide exclusion. It will have already passed and their family is protected.
Service members are most commonly underwritten by life insurance companies based on their occupation. Although there are some plans that do not even ask for their occupation. The ones that do will look at the frequency of operations as well as their territory in order to decide if they will offer coverage at all. If they do they’ll take these factors into consideration in order to determine the price offered. It is not impossible for special forces or pilots to obtain coverage outside of the SGLI. Please contact me for more information.
War or territory exclusion
It is crucial for service members who have hazardous occupations and who deploy to understand that some companies offering private plans may have a war/occupational exclusion. While the majority of life insurance companies removed their war exclusions after the Korean and Vietnam Wars, there are a few companies that still have these exclusions. You will need to verify this before discontinuing the SGLI coverage. Be sure to read the new policy language beforehand. It’s also best to apply for life insurance coverage well before deployment as many carriers will not offer coverage with active orders.
Disability & injury provisions
When a service member is insured under the SGLI program they pay $1.00 a month for Traumatic Injury Coverage. This is a valuable benefit as it does payout for covered losses if a service members suffers from a traumatic injury. I think service members should stay enrolled in at least a small portion of the program because of this feature.
I recommend all service members at least maintain $100,000 of SGLI in order to be covered for this traumatic injury benefit.
The cost of SGLI also includes a disability extension provision. This allows service members who are unable to work due to a covered disability a chance at receiving two years of SGLI at no cost. On a private market plan life insurance carriers offer a waiver of premium rider which extends to the end of the policy term. This is an add on a consumer pays for in order waive their premium payments if they become disabled. The below case studies will include the rider for private market plans.
Smokers & health conditions
Service members who smoke or have rated health conditions will most likely find the military programs to be the best fit. Checking around for several quotes is a good idea to see how they compare to the SGLI.
There isn’t a one size fits all recommendation to service members regarding their life insurance benefit. It truly depends on their risk factors and comfort levels, and it’s worth noting that many service members may be at higher risk for physical and mental health conditions than those in the civilian workforce.
While I am happy that there is a veterans program in place, it doesn’t make sense for service members to run the risk of waiting to see what happens with their health. Essentially they are gambling on their life insurance costs in the long run.
My advice is for service members to look beyond the cost. It isn’t always about the money. When putting together a life insurance plan for service members, I aim to help them obtain the right amount of coverage and determine a strategy that works with their career goals. My hope is this article has highlighted some important features of the SGLI, VGLI as well as private market plans.
As a practicing broker I help military members and their families protect their home front with supplemental life insurance that fits their budget. Request an online quote or call me today!