By Claire Wood
We are taking an in-depth look at how a military family lives through the year as it relates to personal finance. We began in January 2022, with a focus on performing a cash analysis for your family and looking ahead at upcoming potential expenses. For February, the focus is on doing an insurance analysis with a specific look at life insurance.
Our family has had a term-life insurance policy for almost twenty years. This year, the term ends and we find ourselves in a position to determine what our life insurance needs are now that our children are much older and our financial needs have changed.
When we initiated this original policy, my husband was not a servicemember. Since he’s been in active duty service we consider our private insurance an added bonus to the SGLI that the military provides us. Military life offers us more than our share of added stressors. We decided early on that having ample life insurance would alleviate some modicum of worry in this sometimes dangerous and often unpredictable lifestyle.
What Is SGLI?
SGLI stands for Servicemembers’ Group Life Insurance and it is a policy that is available to military members while they serve. Most are signed up automatically through their specific branch and this plan offers up to $400,000* worth of life insurance coverage in the event of death. According to VA.gov, this is paid out in $50,000 increments and has specific criteria at retirement or separation from the military.
For our family, since we already had private insurance with a very low monthly cost for a fair amount of coverage, we opted to keep ours in addition to what the military provides. For servicemembers who opt for the full $400,000 coverage, the monthly cost is around $25.00 and is debited directly from their paycheck. If you are uncertain about whether or not you are enrolled in this coverage, or if you want to change amounts or your beneficiaries, go to MilConnect to access your account.
*In 2023, the maximum coverage available from SGLI was increased to $500,000 from $400,000.
Do Military Families Need Additional Private Life Insurance?
This is purely personal preference, but for our family we felt that having additional coverage was worth the cost. Especially when our family was younger and the unimaginable circumstances of me being left with our children to raise following the potential loss of life and annual income generated by my husband. We personally felt that $400,000 might not go very far to cover a relocation, the purchase of a home, month-to-month living expenses, as well as educational expenses for our three children. We kept our private life insurance and have continued to feel very comforted knowing that we have ample financial coverage if the worst were to happen.
If you already have private life insurance, it is very important to read the fine print of your policy to ensure your life insurance company covers military servicemembers. Some do not, as they consider military servicemembers too high a risk to cover.
If We Want to Add Additional Life Insurance What Are the Two Kinds and How Much Coverage Do We Need?
There are two general types of life insurance: Whole life and term life policies are offered by most insurance providers. According to Investopedia, “Whole life insurance lasts for an insured’s lifetime, as opposed to term life insurance, which is for a specific amount of years. Whole life insurance is paid out to a beneficiary or beneficiaries upon the insured’s death, provided the policy was in force.”
Additionally, most of the time, whole life policies have a high monthly cost that gets deposited into the insured’s account. Some argue this serves as a long-term savings account that is paid out at death in one lump sum. Term life typically offers a much lower monthly cost and ends when the term ends. If the insured outlives the policy, there is no payout at the end of the term.
For our family, we opted for the lower-cost monthly premiums. It made more sense for us to spend less monthly for coverage and save and invest larger sums on our own outside of a whole life policy.
We decided that both my husband and I would each carry a $500,000 life insurance policy for a twenty-year term. Because we obtained this policy when we were newly married, young, and in excellent health, we were able to lock in a very low monthly premium. To date, we have each paid around $16.00 per month for this policy.
We opted to get the same coverage on me as we believed that if something were to happen to me while our kids were young, we wanted my husband to be able to have the flexibility to work or not and not be stressed about money and finances should there be loss of life.
So What Happens Now, Twenty Years Later?
As I mentioned earlier, we have nearly reached the end of our private life insurance term. We have happily paid collectively around $32 per month, or about $380 annually for the peace of mind that our family would be okay financially in the event of a tragedy.
Our current company offers the option to extend our term, but because we are now twenty years older and much more likely to have illness or other risk factors, our monthly premiums go up substantially. Instead of $16 each to have half a million dollars in coverage, now to keep that same coverage at age 45, it will cost us each around $306 per month. Yes, you read that right. It jumps up nearly $300 because our term runs out. Year over year, it will continue to increase about $500 annually the older we get.
This significant jump in our monthly premiums has given my husband and me cause to consider what our current life insurance needs are and how much we are comfortable paying each month to continue similar coverage.
One tool that helped us to determine our needs was using the American Armed Forces Mutual Aid Association’s (AAFMAA) Life Insurance Needs Calculator. We were able to play around with amounts in their online calculator to factor in data points like how much we have in our emergency savings, how much we think we will need for annual income, what we have saved for our kids’ college, as well as our current ages.
After much discussion and evaluation of our overall financial picture, we have decided that we no longer need to carry $500,000 on me. Our kids are all teenagers and if something were to happen to me, it would likely not impact my husband’s ability to continue working. We have decided to drop my coverage down to $200,000. We do feel like we want to keep the $500,000 amount of coverage (in addition to his SGLI) on my husband.
We have several feelers out to multiple companies to get quotes about new term life policies on each of us that meet our current needs. With fewer financial liabilities and needs and the higher our risk factors, we anticipate needing to pay a total of around $100 per month for our new combined policy.
For military members who are interested in getting started with the investigation process for private life insurance beyond SGLI, AAFMAA offers life insurance options and a robust amount of information about them online. There are five term life policy and six whole life policy snapshots that reveal who is eligible, what coverage amounts are included, as well as benefits of each plan.
You can easily enter a few quick personal details about your needs and receive a follow-up phone call and/or email to learn more. AAFMAA Members rate AAFMAA 4.5 out of 5 stars on Trustpilot, with over 1,100 reviews. Some appear right on their website so you can get a better grasp on their customer experience, brand integrity, and trustworthiness. It’s makes it a good place to start to get a better view of your financial picture.
Claire Wood is a military spouse who calls home anywhere the Army sends her. She loves reading, hosting friends, and keeping houseplants alive. She shares on Instagram @home_sweet_military_home and her 2015 book, Mission Ready Marriage is available on Amazon.