Protecting Your Savings: Is the SGLI Enough?

August 21, 2012
By Lila Quintiliani, AFC®
Military Saves Assistant Coordinator

To be a successful saver, you’ve really got to have all your bases covered.  You could have a nice fat bank account, but if you don’t have auto insurance and you get in an accident, or if you don’t have renter’s insurance and your dog bites the neighbor’s kid, you could be in big financial trouble.  So in order to preserve what you’ve got, you can’t ignore what I like to term “the boring stuff.”  Yet life insurance is something that most service members are completely uninterested in.  Yeah, I’ve got SGLI.  That’s all I need.   Yawn.  But it’s not quite as simple as that.  For some servicemembers, the standard top tier of SGLI coverage, $400,000, is way too much, but for many others, it is not nearly enough.

When is $500,000 not enough? Many active duty military have families.  Life insurance is meant to replace the income stream of the deceased person.  While half a million sounds like a lot, when you think about rising costs of health care, housing and college, it’s not such a big number.  Especially if there are multiple children involved.  (The $500,000 figure comes from the $400,000 maximum SGLI benefit plus the $100,000 death gratuity, a one-time tax-free payment that is paid to survivors).  Servicemembers also have the option to purchase Family Servicemembers’ Group Life Insurance (FSGLI).  But the top level of coverage for that is only $100,000.  If you have a spouse who works, this amount is not nearly sufficient to make up for that loss of income.  Exactly how much life insurance you really need depends on your situation, but the Veteran’s Administration has a life insurance needs calculator to help you out.

What if I don’t have enough insurance? Keep these tips in mind when you are looking for an additional policy.  Since SGLI is term life insurance, which is very much like your auto insurance in that if you don’t pay it, you aren’t covered, I am only talking about term life insurance policies here.
·    Many insurance companies have a clause that does not cover military members who die during military actions or war.  So you will want to specifically ask about that. 
·    You will want to compare rates from several companies.  Unlike SGLI, term life insurance companies will base your rate on how old you are and how healthy you are.  They may require you to take a physical exam as well.
·    You will also want to look up a company’s reliability and financial stability.  Two of the big companies that rate insurers are Moody’s Investor Services and A.M. Best.
·    Term life insurance is for a specific period of time, such as 20 or 30 years.  So if you get a policy in, say, your early 30s, you will lock in the rate for that age bracket and retain it for that entire period of time.

How could I have too much insurance? If you are a single servicemember with no dependents and you are paying for $400,000 of SGLI, you may be over insuring yourself.  For someone just starting out in the military, $27 per month can make a difference.  You might consider reducing your coverage.  For instance, $50,000 of coverage is only $4.25.  You could put the difference in your emergency savings account.

For more information:
Life Insurance (Department of Veterans Affairs)
Beyond SGLI (Military.com)
How Much Life Insurance Do Military Members Need? (The Military Wallet)
How to Buy Life Insurance (Nolo)
The Boring Stuff (Military Saves Blog)

 

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