There's More to Life Than SGLI and VGLI

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Several years ago, I knew a good man with a beautiful family who lost a battle with cancer while three of his four children were still in elementary school. To this day, it hurts to think about it. But that's the nature of death, isn't it? It's tough on the survivors.

So what about you? If you died unexpectedly, how would your survivors get by? Would the financial strain be as bad as the emotional one?

In the military, you've got Servicemembers' Group Life Insurance and, possibly, the VA Death Gratuity to help ease the financial stress on your loved ones. That nice set of benefits could mean up to $500,000 for your family if you die.

If you're covered by SGLI, each of your children automatically receives $10,000 of coverage. You also can buy up to $100,000 of coverage for your spouse, unless your spouse is in the military (and therefore, already eligible for SGLI).

Unfortunately, when you leave the military you leave these great benefits behind. In most cases, 120 days after you step into the civilian world, your SGLI coverage stops, leaving you with no life insurance unless you've made other arrangements.

In general, there are two ways to handle this possible shortfall:

1. Buy a Policy on Your Own

One option for replacing SGLI is to buy a term policy or permanent policy on your own, outside of VA-related programs. Because individual policies require medical underwriting, they generally have lower premiums than insurance obtained by converting your SGLI to a VA-related policy. If you're able to pass the medical requirements to get one of these policies, this can be an attractive approach to replacing your SGLI.

Another way to replace your SGLI outside of the VA is by getting group term insurance from a civilian employer. Though this typically is a low-cost option, there are at least two major drawbacks to this approach. First, your insurance once again will be tied to your employer. Second, this type of insurance is typically offered in multiples of your annual income, which means you may be limited to getting coverage that's only one or two times the amount you earn.

For example, if you earn $50,000, your maximum amount of life insurance might be twice that amount — $100,000. So, depending on your salary, you might not be able to get the level of coverage you need.

2. Buy a Policy Through a VA Program

But what if medical issues would disqualify you from getting a personal policy? Fortunately, the VA has two SGLI conversion programs that don't require medical screening.

Granted, if you're healthy, insurance under these programs will likely be more expensive than buying a policy of your own, but at least you have options.  The first option is to convert your SGLI policy to a renewable term insurance policy known as Veterans' Group Life Insurance. The second is to convert your SGLI policy to a permanent life insurance policy, such as whole life, offered by a traditional insurance provider participating in the program.
The main advantage of the conversion programs is that neither requires health checks or questions, provided the conversion occurs within 120 days of separation from the military.

A Prudent Policy

As I already mentioned, SGLI is a great perk, but it can also make sense to buy a separate life insurance policy while you're still on active duty. Here are a couple of reasons:

  • Sufficient protection. The basic SGLI death benefit of $400,000 might seem like a lot of money, but once you consider all the potential needs of the surviving family, it may not be enough. An extra policy could help cover your debts, fund college for your children, or allow your family to maintain their desired standard of living.
  • Coverage in transition. If you buy a policy when you're healthy, you still have it if you get sick or hurt, or if you leave the military.

In the end, we all hope to look back one day on the money we spent on life insurance and happily realize we hadn't needed the full benefit. But one of the sad realities of life is that at some unpredictable point, it ends. So take steps to ensure that if it happens to you sooner rather than later, your family won't be caught short.

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