Paycheck Chronicles

Plan Your Life Insurance Strategy Before Separating


I've been talking to some of my retired friends about topics that they think I should write about, and one thing has come up repeatedly:  If your overall financial plan includes purchasing life insurance after retirement, get the policy purchased well before leaving active duty.

When a military member leaves the service, they are no longer eligible for the Servicemembers' Group Life Insurance (SGLI) plan, and their spouse is no longer eligible for the Family Servicemembers' Group Life Insurance (FSGLI) plan.  This often results in the need to purchase additional coverage.  While there is a Veterans Group Life Insurance (VGLI) program, the rates aren't always competitive.  Therefore, many people who leave the military elect to purchase their additional life insurance through private companies.

Purchasing new life insurance through private companies typically requires medical clearance, and it seems that a notable number of people to go purchase their new life insurance and discover that they have a medical disqualification for private coverage, or their medical situation means that private coverage is super-expensive.

One of the benefits of VGLI is that it does not require medical qualification if purchased within 240 days of leaving military service.   This is a huge boon for those are medically disqualified for affordable coverage on the open market.   240 days seems like a lot until you consider all the things that happen with leaving the military service:  changing jobs, maybe moving, maybe new health care, maybe starting schooling, etc.  It can be easy for 240 days to fly by and suddenly the veteran realizes that they've just made it through the process of realizing that they can't get affordable private life insurance.  Once that 240 day mark passes, they may no longer have the VGLI option if they don't qualify medically.

In addition to the pure life insurance question, there is a relationship with the decision whether to elect Survivor Benefit Plan (SBP) coverage.  While I am in favor of SBP coverage for most situations, there are a significant number of retirees who feel it is better to purchase private life insurance in lieu of SBP.  However, SBP is a one-time decision made at retirement.  If you wait until after your SBP election period to look into private life insurance, you might be unpleasantly surprised to discover that SBP was a better choice for your particular situation.

Whether we're talking about VGLI or SBP, the key is knowing your situation before you're stuck in a situation where the best option is no longer available.  If you're planning to purchase private life insurance to supplement or replace either SGLI or SBP, start the process long before you anticipate leaving the military.  Given how busy we all are, and how many things there are to deal with during separation or retirement from the military, I wouldn't think that two years is too early to start.

Add life insurance to your "things to do before leaving the military" checklist, and you won't have to worry about running out of options.

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