How Serving in the Military Affects Life Insurance
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More than 1.3 million Americans defend our country serving in the Army, Navy, Marines, Air Force, or Coast Guard. These brave soldiers face both combat and dangerous travel. As a result, life insurance is a particularly important financial planning tool for military personnel and their families. Fortunately, the United States government recognizes this by providing affordable and comprehensive policies to these servicemen and women.
Life insurance terminology can be confusing. In the most basic sense, there is term life insurance and whole life insurance. Term life policies have a single end goal: pay beneficiaries a lump sum in the event of the policy owner’s death. This amount is specified prior to death. Premiums are generally low and do not change over the course of a lifetime.
Whole life insurance, however, is more complex; while these policies pay a death benefit to survivors, they can also be used as tax-sheltered investment tools and may be borrowed against while the policy is active. Premiums are more expensive and may vary based on factors like age, health, or available investment options.
Whole life insurance policies come in a few different variations.
- Variable life insurance offers tax advantages that are appealing to many. Premiums accrue in a tax-free account that is then invested on the policy holder’s behalf, and the death benefit is based on the earned value of these investments over time. This cash value can also be borrowed against prior to death.
- Universal life operates similarly, but splits premium payments into investment funds and cash accounts that accrue interest. These are also tax-free and may be a source of loans.
- A universal variable policy, while more expensive, combines these features and also allows policyholders to control how funds are invested.
- Mortgage life insurance is a policy that, upon your death, assures that your home mortgage is paid off. No other death benefit is paid to beneficiaries.
All branches of the military recognize that many life insurance policies available to consumers may contain exclusion clauses that apply to service members; warzone exclusions, for example, are common. Fortunately, active military and retired veterans have life insurance options that are exclusively available to members of the armed forces.
Life Insurance Options for Military Families
- Serviceman’s Group Life Insurance (SGLI) may be purchased by any active duty military, members of Reserves and ROTC, and other groups such as employees of the U.S. Public Health Service (PHS) and the National Oceanic and Atmosphere Administration (NOAA).
- Veteran’s Group Life Insurance (VGLI) offers a natural transition from an active duty policy to a retired veteran’s policy. VGLI and SGLI both serve group policies in which the enrollees collectively keep premiums low.
- The Army and Air Force Mutual Aid Association (AAFMAA) offers a range of insurance terms and policies for all five military branches who are active duty, reservists, or retired service members. ROTC members may also purchase an AAFMAA policy under certain provisions.
- The Navy Mutual Aid Association (NMAA) offers a selection of life insurance and financial planning tools to active and retired military. Contrary to the name, these policies are not restricted to Navy service members; Army, Marines, and Coast Guard personnel, as well as employees of the PHS and NOAA, are also welcome.
While life insurance needs should be evaluated with specific families in mind, it is generally true that insurance policies offered by one of these entities will most likely serve the needs of soldiers.
Which Option Is Best for Me?
Each insurance plan tailored for military personnel and their families has benefits and restrictions that should be weighed against family variables. It is good practice to examine the fine print when choosing the policy that will best benefit survivors in the event of a soldier’s death.
SGLI strictly offers term life insurance policies. Death benefits up to $400,000 may be purchased for individuals, and spousal coverage of $100,000 and dependent coverage of $10,000 per child may also be added. An additional layer of protection can be added for $1, which helps service members and their families in the event of traumatic injury. And of course, there is no war zone exclusion.
Premiums are inexpensive and remain constant throughout the policy term, regardless of age or health status. Policies are priced at 65 cents per $1,000 of benefits. Upon retirement, SGLI policy benefits may be transferred to a commercial life insurance policy or VGLI. Application is easy; no extensive paperwork or medical exam is necessary.
VGLI is very similar to SGLI, but designed for retirees. Death benefits are available up to $400,000, and spouses and dependents may also be covered. If an SGLI policy is converted to a VGLI policy at retirement, policy owners may purchase death benefits up to the maximum amount held in the active duty policy. For example, an active duty soldier may purchase a $300,000 benefit while serving; upon retirement, however, a VGLI policy may only go as high as $300,000. It is considered good practice to buy the maximum amount of SGLI coverage available to avoid this limitation at retirement age.
There are notable exceptions to SGLI policies. Existing health conditions will not affect premium price if the policy is rolled over within 120 of service separation. If this time period expires, a medical exam is necessary and the results can affect premium prices. Applicants may also be excluded for some health conditions, including post-traumatic stress disorder. Premiums are also priced by age; the older a veteran is, the higher VGLI premiums will be. A 34-year-old veteran with a maximum death benefit can expect a $40 premium, while a 60-year-old veteran will pay $432 for the same policy.
AAFMAA offers the largest number of options for both term life and whole life policies. Allowable benefits are higher; term policies may pay out up to $800,000, and whole life up to $1,000,000. Coverage is never excluded for deaths related to war, aviation, terrorism, or deployment status. Spouses, children, and even grandchildren may be added to these policies. Both term and whole life policy holders may borrow against policies during their lifetimes. A one-time loan of up to $4,000 may be repaid over two years at a fixed 1.5% interest rate.
Term life policies from AAFMAA are available for short-term and long-term needs, with either lifetime death benefits or a policy that specifies a certain number of years. A low premium is fixed for the life of the policy. For example, a 60-year-old male with $500,000 of coverage would pay a premium of $107. Premiums are based on age and gender; a 45-year-old female with the same coverage pays a $21.50 premium.
Whole life insurance from AAFMAA allows for a return on the investment made in the policy. After costs, remaining premium amounts accrue with tax-free interest over time. This cash amount continues to grow until death, even after plan payments are completed. Policies may be purchased for up to $800,000, and family members may be added. For special medical needs, this policy may also be converted into a long-term care settlement.
Premiums for AAFMAA are based on branch of service, age, gender, and health status for any policy that exceeds $100,000. As an example, a 30-year-old active Air Force soldier who smokes and desires $250,000 in coverage can expect to pay $172.50 per month. Alternatively, a 45-year-old non-smoking female Air Force member will pay $267.50 per month for the same policy.
NMAA also offers both term and whole life insurance options, but with different restrictions. Term life is available in renewable, 10-year increments for up to $1,000,000. No medical exam is required and the premium, once established, does not change during each 10-year period. A 50-year-old female could purchase the maximum death benefit for $128 per month.
NMAA’s whole life option is similar to that of AAFMAA, with one exception: policies are based on age and gender only, and medical status does not apply. Premiums are distributed between a tax-free death benefit and a tax-free cash account that accrues interest. A long-term care settlement option is available for demonstrated medical need; coverage may also be purchased for spouses and dependent children up to age 24. A 50-year-old female can expect to pay a whopping $1,676.30 per month for $1,000,000 of coverage. However, if she were to purchase the same policy at age 20, her monthly premium would drop to $467.
There are many variables to evaluate when choosing a military life insurance policy. The age at which you choose to purchase, for example, may influence your decision, since the premiums of several of these policies will increase with age. Particularly in the case of investing in a whole life policy like NMAA’s, there is demonstrated value in pursuing this option while young.
Family needs also come into play. Single service members do not have the same needs for death benefits as those who are married, and married soldiers with children require an even higher payout to provide for their families. However, marital status may not apply when considering whole life policies purely as financial planning tools or personal insurance against long-term care needs.
Lastly, medical status can be a deciding factor for many soldiers. Higher-priced policies that do not require medical exams may be the only option for injured or ill service members who do not qualify for life insurance anywhere else. Conversely, young and healthy soldiers can lock in lower premium rates by taking advantage of health-based policies before illness or injury strikes, which is a valid concern for active duty military personnel.
Choosing a life insurance policy to protect one’s loved ones can be tricky given the sometimes confusing array of options, and military families have special considerations that are generally not addressed by commercial insurance plans. Opting into one of the insurance programs designed for military circumstances is often the best choice. While there are some exceptions, it is generally best to purchase life insurance early in one’s military career in order to reduce premiums and maximize investment potential.