What Happens to My SGLI When I Leave the Military?

A common question that I’ve heard is, “What happens to my SGLI when I retire from the military?”

This is a very important question, and one that you should address when you’re looking to either retire or separate.  There may be times where you decide that VGLI is not worth it, especially if you’re young, single and do not have dependents.  You may also decide that it’s the only choice for you, if other options don’t look feasible.  Either way, this article seeks to inform the broader audience of what your insurance situation can look like, and to provide a rough overview of things you should consider as you’re going through your transition.  In-depth topics will be covered in future blog posts, but you can also find a LOT of information on the VA’s website:  http://www.benefits.va.gov.

What is SGLI?

As everyone knows, Servicemember’s Group Life Insurance (also known as SGLI), is one of the best deals going, in terms of life insurance.  It is regarded as some of the cheapest group life insurance you can find, anywhere.  SGLI requires zero underwriting, and all servicemembers pay the same rate regardless of sex, age, physical condition, or smoking status.  All servicemembers are automatically enrolled for the maximum coverage, $400,000, and pay $28.00 per month for this coverage.  Additionally, SGLI allows servicemembers to be eligible for two other types of coverage:

TSGLI:  SGLI Traumatic Injury Protection Program

FSGLI:  Family Servicemembers Group Life Insurance

TSGLI provides additional traumatic injury coverage to all servicemembers covered under SGLI, and costs $1.00 per month.  FSGLI is available as additional life insurance for your spouse (up to $100,000) and dependent children ($10,000).  Coverage is available for dependent children at no cost, while the spousal premium ranges from $5.00 per month (for ages 34 and below) to $50.00 per month (for ages 60 and older).  Needless to say, SGLI is a good deal.

What happens when I leave the service?

The first thing to realize is that SGLI is only available for up to 120 days after separation from service or retirement.  Your TSGLI & FSGLI are dependent upon your ability to maintain SGLI coverage, so you will also lose that coverage when you are no longer eligible for SGLI.  However, the VA does give you several options to transition from SGLI to similar post-military coverage.

1. SGLI Disability Extension. If you have a total disability, you may be eligible for SGLI Disability Extension, which provides free coverage for up to 2 years after separation.  If you have a disability and think you may qualify, you should go to the VA website for more information.
2. Convert SGLI to a commercial life insurance policy. Servicemembers have the option of converting their SGLI to a permanent commercial policy within 120 days of separation from service, without having to prove good health.  However, this option includes converting to a permanent policy, such as a whole life policy, which can be much more expensive than term insurance, which is not eligible.  If you don’t know the difference between a whole life policy and a term life insurance policy, please email  I’d be more than happy to discuss it with you, and will probably write a future article on this topic.  Most fee-only financial planners will advise clients to steer clear of permanent insurance policies because they are more expensive than term policies.
3. Convert SGLI to VGLI. Also known as Veterans’ Group Life Insurance, VGLI allows you to continue the same level of coverage without having to prove good health.  You will pay more money in premiums, based upon your age.  However, the premiums are the same for men and women, and do not take into consideration any of your medical history (provided you convert your policy within 120 days of separation from service).   This might be a viable option if you have health-related concerns that might prevent you from obtaining a good term policy.
4. Purchase a Term Insurance Policy. For a lot of people, term insurance is an appropriate choice, for several reasons.

 

First, in many cases, you can purchase a 10, 20, or 30 year level-term policy.  A level-term policy simply states that the premium stays the same for that period of time.  Contrast this with VGLI, where the rates go up every 5 years.  Over time, you may find yourself paying a LOT more for VGLI than you would for similar term coverage.  This is especially true for women, non-smokers, and people in outstanding health, who pay the VGLI rate as men, smokers, and people in poor health.  Commercial policy underwriting takes many factors into consideration when pricing out a policy.

 

Second, you can purchase much more insurance.  While this article won’t tell you how to determine how much insurance you need, there are many cases in which $400,000 coverage just doesn’t begin to address the loss of income and savings potential over the insured’s career.  A commercial policy can cover much more than the VGLI amount, which can make a significant difference in your beneficiary’s quality of life in the case you die.

How do I know what choice to make?

Figure out insurance needs.   While you can get quotes from USAA, Navy Mutual Aid, or any number of insurance providers, you

Do price-shopping for 20 or 30-year term life insurance quotes.  You may decide that with good health, you can go all commercial, or you may decide that $400K in VGLI might be worth it.  How do you choose between 20 or 30 years?  That is simple, yet difficult.  Simple, because your insurance policy should cover you for the period of time that you expect to have an insurable loss—meaning if you die, you do not have enough saved up in retirement assets for your spouse or beneficiaries to live on.  Difficult because most people don’t know how long they plan to keep working 20 or 30 years in advance.  You may decide that 20 years is all you need, but if you’re in doubt, you might want to look into a 30 year term as well.

Budget for the insurance choice.  Whatever you choose, it WILL be more expensive than SGLI.  Make sure you take this into consideration well in advance of your separation or retirement.  Make sure this is a permanent part of your budget.  With term insurance, your rate will remain the same for the term of the policy.  However, with VGLI, you’ll have to account for the rate change every fifth year (for example, age 30-34, age 35-39, etc.).  You can see the latest VGLI rates here .

As always, this blog serves to answer your questions and address concerns.  If you like this blog, please forward it on to other people who may benefit.  If you have issues or concerns, or if you have a question you’d like me to answer, please feel free to contact me.  You can reach me through my website, or via email.  In the meanwhile, take charge of your life!