For many people, the $400,000 of coverage under the government's Servicemembers Group Life Insurance program would meet their family's needs after their death.
But everyone leaves the military at some point, and everyone has to make the decision about life insurance. SGLI coverage ends after the military. SGLI coverage can be converted to a Veterans Group Life Insurance policy within 240 days of leaving the military, without a health exam. Although VGLI is a good option for many people, it can be more expensive than many options available in the civilian insurance market.
So if you decide you need more than the $400,000 SGLI coverage while you're in the military, or want to explore alternatives to VGLI before you leave the military, you'll have to bone up on types of insurance. At the most basic level, your choice is between term and permanent insurance. And if you choose to buy more, make sure the policy doesn't have a war clause or any exclusions that would be tied to your job or other factors — for example, if you're an aviator.
Permanent coverage lasts a lifetime, with some policies actually building up cash value. Term coverage is just what its name implies — it lasts for a specific number of years. SGLI is a form of term coverage since it applies only while you're on active duty.
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Other policies combine different types of coverage.
According to the National Association of Insurance Commissioners and the Insurance Information Institute:
Term insurance is typically less expensive than permanent insurance and is often used by people in periods of the greatest need to replace their income if they died — for example, when children are young, to pay for a child's college education, or to pay off a mortgage or other debt.
These policies pay out only if you die within the specified term. Most companies will allow you to renew the policy at the end of the term even if your health has changed, although your premiums may increase.
Some term policies have a "conversion" feature that lets you convert it to a permanent policy without a medical examination, but with higher premiums.
Permanent insurance — whole life, universal life, variable life and variable-universal life — generally is more expensive because it covers a longer time. It pays a death benefit whether you die next week or if you live to 110.
- A whole life policy has level premiums, which means no cost increases as you get older. These policies also build cash value. Make sure you can afford the premiums; if you can't, or you don't intend to keep the policy for the long term, it may not be right for you.
- Universal life policies are more flexible, possibly allowing you to increase the amount of insurance later if you pass a medical exam. After the policy builds up cash value, you may have the option to change your premium payments. But if you stop or reduce the premiums and use up the accumulated cash value, the policy could lapse and your coverage could end.
- Variable life combines death protection with a savings account that you can invest. But if your investments don't perform well, there's a risk that your cash value and death benefit might decrease. Some policies guarantee that your death benefit won't fall below a minimum level.
- Variable-universal life offers the features of variable and universal life policies, allowing you to invest accumulated savings as in variable life insurance, and allowing you to adjust your premiums and death benefit as under a universal life policy.
It's perfectly acceptable to mix and match different policies — for example, a smaller permanent policy for long-term protection with a premium you know you can afford, combined with a larger term policy that covers big financial needs that may not exist in later years.
Karen Jowers covers military families, quality of life, and consumer issues for Military Times. She can be reached at kjowers@militarytimes.com.
Karen has covered military families, quality of life and consumer issues for Military Times for more than 30 years, and is co-author of a chapter on media coverage of military families in the book "A Battle Plan for Supporting Military Families." She previously worked for newspapers in Guam, Norfolk, Jacksonville, Fla., and Athens, Ga.
