Do the Math: You Need Life Insurance

Senior Airman Nathan Slocum says his final goodbyes to a family member before deploying in support of Operation Freedom’s Sentinel. (U.S. Air National Guard/Adam Juchniewicz)
Senior Airman Nathan Slocum says his final goodbyes to a family member before deploying in support of Operation Freedom’s Sentinel. (U.S. Air National Guard/Adam Juchniewicz)

Service members are fortunate to have automatic life insurance through Servicemembers Group Life Insurance (SGLI). While SGLI is enough to protect many military families, it may fall short of the recommended coverage for some.

Here are four steps to help you get the coverage you need:

Step 1: Review your current coverage or policies

SGLI provides up to $400,000 of coverage for active-duty military members, but some service members may need to purchase additional life insurance depending on their personal situation. Why? The need for life insurance is based on a number of factors, including income, expenses, financial goals, and the number and age of family members dependent on your income.

A good rule of thumb is to have life insurance protection that covers seven to 10 times your annual income. For example, an E-6 with an average salary of $49,800 may need roughly $350,000 to $500,000 of life insurance coverage. service members in a similar position may find that SGLI meets their needs. However, an O-3 with an average salary of $71,200 should have roughly $500,000 to $700,000 in coverage, and may want to consider purchasing additional coverage.

Also, if you plan to separate from the military, make sure you include the purchase of life insurance on your "to-do" list. You can switch SGLI to a Veteran's Group Life Insurance policy without a medical exam, but your coverage amount cannot exceed the amount of SGLI coverage you already had. Depending on your age and health situation, replacing SGLI with insurance from a private carrier may be much more cost-effective. Also, SGLI may offer enough coverage right now, but what about your growing family and changing obligations. Supplementing your SGLI now means you won't pay more for the same coverage later, when your health could change.

 

Step 2: Do the math

If you need more coverage, your next step is to figure out how much. You can work with your insurance provider or a non-commissioned financial planner to evaluate the right level of coverage for you and your family. Free online calculators on sites such as life-line.org or usaa.com can help you assess your needs as well.

It's best to purchase additional coverage as soon as possible, since policies generally cost less when you're younger and in better health. For example, a 45-year-old male may qualify for $250,000 of level coverage and premiums over 20 years for $36 per month. A 25-year-old male would pay even less for the same policy -- $14 per month.

Step 3: Weigh your options

Once you determine how much coverage you need, decide which type of insurance is best for you - term or permanent. Consider the differences below:

Term

Term insurance is temporary, and only lasts for a certain period of time. You pay premiums and your beneficiaries receive a death benefit. There's no cash value or investment component. It's ideal to cover short-term needs, such as college costs or a mortgage.

Initially, term insurance is less expensive. If your need for coverage extends beyond the initial term, the coverage can become quite expensive.

Permanent

Permanent insurance is just that -- permanent. This type of policy is designed to last a lifetime. It combines a death benefit with cash value. It's ideal for long-term needs, such as estate planning. Initially more expensive than term insurance, it can be cheaper in the long-term since it provides lifelong coverage, whether your health changes or not.

Step 4: Shop around

When comparing policies, consider more than just the cost. As you shop around:

-- Look for financially strong companies with "A" ratings from agencies like A.M. Best, Moody's, and Standard & Poor's.

-- Research the company's customer service record on web sites such as www.consumerreports.org. Check out other benefits, such as free guidance to help beneficiaries spend and invest the proceeds wisely.

In addition, service members should pay special attention to the following:

"War clauses" make sure the policy doesn't have a "war clause," which excludes coverage for death or injury caused by acts of war.

-- Aviation exclusions - make sure there are no restrictions or extra costs for coverage if youre a pilot or crewmember.

-- Dismemberment coverage - ask if the coverage is free or if there is an additional cost.

-- Military separation - find out if the policy continues automatically without a medical exam after you leave the military, or if the coverage can be increased to replace SGLI.

Giving your current coverage an annual check-up will ultimately give you and your loved ones the protection you need.

Joseph "J.J." Montanaro is a certified financial planner practitioner with USAA.

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