SGLI is Not Enough
Serviceman’s Group Life Insurance (SGLI) is the inexpensive term life insurance we can purchase through our pay during active and reserve service. Congress determines how much we can buy, and the current limit is $500K. Congress raises the limit episodically, but it stalled at $400K for nearly 20 years, so $500K is likely to be around for a while. For those of us who don’t earn $500K per year, the idea of receiving that tax-free money seems like it would put a dent in the horrible grief of losing a loved one, but it’s nowhere near enough.
Why Don’t We Have Enough Life Insurance?
Military families are allergic to paying for things that don’t bring immediate value. The primary value of life insurance is peace of mind. Our salaries require that we economize and, whenever possible, get peace of mind from things we don’t have to pay for. This allergy means we usually don’t like to buy extra insurance, pay for legal services, or pay out-of-pocket medical costs if we can avoid them.
Couple this allergy with the ghoulishness of thinking about death that a life insurance purchase requires, and it’s no wonder few of us search out additional insurance. What’s more, the life insurance sales industry has a reputation rivaled only by Congress and used car sales in terms of “ick factor.”
“It costs extra money, doesn’t immediately help our family, and I have to talk to some sales goon who will try to pick my pocket just to buy it… where do I sign?” — No one ever.
How Much Life Insurance is Enough?
Clearly, every family’s needs are different. A good starting point for life insurance is:
1. Buy it cheap. This almost always means level* term insurance.
2. Keep it until self-insured. If you win the lottery or come from family wealth, you may not need life insurance. Everyone else does until their nest egg supports future needs without a job. For most families, this is when the house is (nearly) paid off, the kids are off the payroll, and the nest egg supports the survivor through her/his life expectancy.
*Level term insurance is a type of life insurance policy that guarantees a fixed death benefit and consistent premium payments for a set period (the term), such as 10, 20, or 30 years. If the insured person dies within this period, beneficiaries receive the full, pre-determined amount. Most term policies can continue after their initial term, but the price goes up, or the coverage goes down.
Most families would like to know that the survivor can have a paid-off home, enough dough to cover education costs, and then enough cash to cover income needs for a period of years until the survivor can get back on their feet and potentially earn income.
The $500K from SGLI will be enough as soon as it’s 1960 again. Realistically, a house for retired officer families is $750K to $1.5M in many areas. The GI Bill might cover one little wingman, and if the service member dies on active duty, the Fry Scholarship will probably cover the others, but not necessarily for graduate school or K-12 costs. Finally, retired officer families are often living on an income that assumes $200K to $300K per year or more. Hopefully, Survivor Benefit Plan (SBP) and Dependency and Indemnification Compensation (DIC) and perhaps Social Security will replace some of that, but the math doesn’t math.
Five hundred thousand dollars might pay off a home, but it forces the survivor to think about getting back to work rather than circling wagons around grieving children.
Today, it’s rare that a retired O-5 family would need less than $1.5M of coverage.
When Should We Get More Life Insurance?
If the best time to plant a tree was 20 years ago, the second-best time is today. The same is true with life insurance. Unless you’re Gary from Team America, you don’t know when your number is up. You need life insurance yesterday. Get on it today.
Where Should We Get More Life Insurance?
For servicemembers, usually Navy Mutual, USAA, or AAFMAA are going to be your best bet. For non-military focused carriers, you’ll often find higher costs coupled with exclusions for service-related death, aviation, and other things we do on a Tuesday.
How Do I Get More Life Insurance?
Like everything else in the 21st century, fill out an online form first on the company’s website. They’ll relentlessly love your phone number until you have an interview call. You’ll authorize review of your medical history and probably get scheduled to have your vitals taken and juices sampled. You’ll be given a preliminary quote, which usually holds unless your medical history has some creepy crawlies in it.
How Much Does More Life Insurance Cost?
Probably less than you expect, but the number will depend on your health history, age, the amount you want, and how long you need it for. A good rule of thumb is between $5-$12 per $100K per month for a 20-year term policy or $50-$120 for $1M.
For most families, this cost is less than dinner out 1-2x per month.
Where Should I Get Money to Pay for Life Insurance?
If the family budget is stretched like Chris Farley’s jacket in an SNL skit, consider shaving a bit off of retirement savings. I would rather see a modest reduction in TSP or IRA funding to have enough Term Life Insurance than see a family max out the TSP and two Roth IRAs but skimp on life insurance.
Is Life Insurance Fire and Forget?
Nope. We usually need the most when our kids are young and we need little to none as we near retirement if we’ve saved and compounded well over the years. Families should review what they have every year or so and consider replacing, adding, or even pruning policies to meet their current needs.
Won’t My Post Military Employer Give Me Life Insurance?
Maybe. Bigs like the airlines and defense primes tend to offer decent coverage, but it’s often as, if not more, expensive than an individual policy, and it’s not level. It gets more expensive as you age. Plus, if you lose your job/switch employers,/etc, that policy goes poof. It’s best to fully control your insurance foundation.
When Do I Stop Needing Life Insurance?
Since the goal is to keep it until we’re self-insured, we need to keep assessing whether or not we’re at High Key. If that’s meaningless to you, congrats on having had multiple engines. Can you glide in from where you’re at? Will your savings support your spouse and kids until your spouse passes? It’s rare to have life insurance, especially Term Life Insurance, past one’s mid-sixties.
What’s common is to realize in one’s late fifties or beyond that:
1. You are now self-insured because the nest egg is more ostrich than hummingbird.
2. Term insurance premiums are budget dust in your current world.
3. You might as well keep the policy until it lapses, but…
4. You can cancel it if you want.
Can’t I Just Get Life Insurance When I Retire from the Military?
Every day, we get older and sicker. Those two factors work against insurability. This article roared to life when I recently discovered a family where:
1. The servicemember was medically retired before 20 years with a debilitating disease.
2. The disease both prevented the servicemember from working after the military and prevented any life insurance purchases.
3. The spouse could not earn at the same level as the service member.
4. Out-of-pocket medical costs, even with Tricare Retired, stacked up.
5. The servicemember lived a decade while savings dwindled and debt stacked.
6. The servicemember passed, leaving the spouse unable to afford the family home, with two teenagers hoping to go to college, and two and a half decades of missing earnings power.
Unless you can prove the case that you’re so overinsured that you need to have the dog test your food because your spouse knows you’re worth more dead than alive, you probably need more life insurance.
Cleared to Rejoin
SGLI is nowhere near enough. Life insurance isn’t a fun topic, but the peace of mind from knowing that you aced your last mission—caring for your family from the grave is worth every penny. When it comes to life insurance, it’s better to have a little too much, starting a little too soon, and kept for a little too long than any of the opposites. Why tempt fate?
Fight’s On!
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