Life Insurance 101: Understanding SGLI
[This is part 1 of a 9-part series. For a full overview of topics, see the Life Insurance Basics page.]
Life insurance is not a pleasant topic. However, if you have a family, insurance is an absolute necessity and most families don't have enough. For the next several months, we will discuss a variety of life insurance topics to help you make informed decisions for your family. We will start with a discussion of the government's Servicemembers Group Life Insurance (SGLI) and how it differs from civilian group insurance.
Coverage. Maximum SGLI coverage is $400,000 - a significant benefit. Most civilian group plans limit coverage to two times your salary up to a maximum of $200,000 or less. A civilian group plan will not replace your SGLI coverage when you leave the service. The $400,000 is automatic when you start active duty. You can decline SGLI or elect it in $50,000 increments depending on your needs.
Premiums. Most civilian group insurance premiums are paid by the employer. Servicemembers pay for SGLI out of their base pay. The cost is $3.50 for each $50,000 increment which totals $28 per month for full SGLI coverage. It is a one-size-fits-all premium. Note that a young, healthy, non-smoker can buy an individual life insurance policy at a lower cost. SGLI is a bargain for the older, senior servicemember.
Term of Coverage. SGLI, like all group plans, is provided as an employee benefit. It terminates 120 days after you leave active duty. Severely injured servicmembers get free SGLI coverage for two years once they leave the service. Conversely, civilian plans can vary; many terminate immediately when you leave the company. Some may allow the employee to convert to an individual policy. Some employers will continue the coverage for their retirees. The government does provide an opportunity to convert to Veterans Group Life Insurance (VGLI) when you leave active duty. However, a healthy veteran will find VGLI to be a very expensive plan. Replacing SGLI coverage when you leave active duty needs to be high on your checklist.
Family Coverage. SGLI provides automatic family coverage. Spouses are provided $100,000 of coverage and each eligible child is covered for $10,000. Most civilian group plans provide only a very modest family rider such as $5,000 for a spouse and less for the children. You pay an additional premium for your SGLI spouse coverage which increases as your spouse ages. Child Coverage is provided at no additional cost.
Traumatic Injury Protection. For an additional $1 per month, you can get up to $100,000 of coverage depending on the injury (e.g. loss of limbs, loss of sight, traumatic brain injury, etc.). Most civilian group plans do not provide this exceptional benefit.
Beneficiary Designation. You may elect a beneficiary of your choice to receive the SGLI death benefit. However, if you are married, recent legislation requires that the government notify your spouse if he or she is not the primary beneficiary of the maximum SGLI benefit. Civilian group plans usually have no such notification requirement.
Settlement Options. SGLI limits your family to just two options: a lump sum distribution or a series of 36 monthly payments. Most other insurance plans will offer a wide variety of settlement options that can be chosen to meet your family's income needs. We will discuss settlement options in a future article. One question that is frequently asked is "Does my family pay taxes on the money?" Life insurance death settlements are not subject to income tax.
An Extra Benefit. In addition to SGLI, the appropriate surviving family member also receives an additional $100,000 Service Death Gratuity from the Department of Defensive, bringing the total coverage for a servicemember up to $500,000. This significant benefit would be extremely rare in the civilian sector.
To learn more about both SGLI and VGLI visit the Department of Veterans Affairs website at www.va.gov and select "benefits" and then "life insurance." In future articles we will discuss the different types of life insurance that are available, typical riders that can be added to policies, important policy provisions, and settlement options.
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