Take Cover: SGLI and Supplemental Life
One of the benefits of military service is life insurance. It helps to provide for your family in their time of greatest need. Unless you specifically opted out, you were automatically enrolled in a Servicemembers' Group Life Insurance (SGLI) policy when you joined your branch of service.
Your SGLI policy will cover you through the first 120 days after you leave active duty. However, many members of the military choose to supplement this policy with additional life insurance while they are still serving. There are several reasons why:
Get Additional Coverage
SGLI provides up to $400,000 worth of coverage. That may seem like a significant sum. However, for families with children, mortgages, college loans or other expenses, that money can run out quickly.
Even if some of the money is invested, a family with expenses of $100,000 a year is likely to use up the benefit in five years or less. Supplemental insurance can cover the gap to make sure your family's expenses are covered for a longer period of time or even paid for completely. That can give you peace of mind, knowing that your family will not have to struggle financially in the event of your death.
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Take Advantage of the HEART Act
The Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act) allows surviving spouses to put some or all of their SGLI benefits into a Roth Individual Retirement Account (IRA). There, the money grows tax-free. In addition, it's not taxed upon withdrawal or transfer to future beneficiaries.
The advantages of that tax savings often means it's worth it to plan to invest the entire SGLI benefit amount in a Roth IRA and take out a supplemental life insurance policy to cover more immediate financial needs.
Cover Your Family Members
Life insurance isn't just important for you. Should your spouse or a child die, there are expenses you may not have considered. Funerals can cost thousands of dollars. Making up for a spouse's income or the cost of replacing his or her responsibilities, such as childcare, can significantly shift your financial picture.
Although no one likes to think about these possibilities, it's important to take considerations like these into account. Reviewing your own situation, you may decide it's in your best interest to take out policies on one or more of your dependents.
Active duty service members who have SGLI can get a Family Servicemembers' Group Life Insurance (FSGLI) policy for up to $100,000 for a spouse and $10,000 per dependent child. However, these are term policies that will expire when you separate from the service. You can convert your FSGLI policy to an individual whole life insurance policy within 120 of your separation or certain other life events and decisions.
Another common family coverage option is for grandparents to take out a policy on their grandchildren. The military does not offer insurance coverage for grandchildren unless you can claim them as dependents. If you wanted to get a policy to cover a grandchild, you would need to get it through a provider other than the military.
Whole life policies, annuities and other products can offer value beyond a death benefit. These products may accrue interest on your premiums or other deposits, which then can be used during your lifetime. Often the interest grows tax-free until you decide to withdraw money from the policy, which means the value can increase quicker.
In addition, these offerings are typically very low-risk, which gives them an advantage over many other types of investments. For all these reasons, they can be a smart way to diversify your investment portfolio.
Making the Right Choice
Insurance needs vary widely from person to person and there's no one solution that's right for everyone. Talking with a financial advisor or life insurance specialist is an important step in making sure you and your family have the coverage you need.
Keep in mind that, while it's natural to consider your insurance needs when joining or leaving the military, other life events, including marriage, divorce, the birth of any children, and even the purchase of a house can provide a reason to reassess how much — and what kind — of coverage you have. Stay on top of your life insurance situation and you'll always know what will be there to protect you should you or your family need to take cover.
About Navy Mutual
Since 1879, Navy Mutual has faithfully fulfilled its duty to support military families by providing excellent life insurance and annuity products. We are proud to serve as steadfast advocates for Navy Mutual Members to ensure they receive the benefits and financial security they deserve. At Navy Mutual, our guiding principle is to serve our Members the same way they serve our country — with integrity, passion, and commitment. Learn more at www.navymutual.org.