The Servicemember’s Group Life Insurance Program is Often Oversimplified or Misunderstood
Military service has always been fraught with risk – it is an unavoidable issue for everyone wearing a uniform. While each service spends millions on risk management programs and training every year (ORM, RMF, etc.), individual service members are essentially provided little training and few options to manage the personal financial risks associated with their service.
A great example is the Servicemember’s Group Life Insurance (SGLI) program. Originally founded in 1965, the program is supervised by the VA and administered by Prudential Insurance Company, providing low-cost life insurance coverage without the “war clause” exclusion typical to most insurance policies. While many find these policies affordable, their role in a servicemember’s greater financial risk mitigation strategy is often oversimplified and misunderstood.
How Much Coverage Do You Have?
SGLI provides a maximum of $400,000 of life insurance benefits in increments of $50,000. It only costs $25/month and it’s automatically deducted from your monthly base pay.[1] As an active-duty servicemember, you are also qualified for up to $100,000 in Traumatic Injury Protection (TSGLI). You are automatically enrolled in these programs which makes it easy to put additional life insurance decisions on the backburner.
Furthermore, the low cost of SGLI and TSGLI make them not only enticing but also necessary for active-duty service members, many of whom are priced out of private insurance products due to the inherent risks of their jobs. While SGLI and TSGLI coverages are essential, they are often not enough to fully protect your family. This is especially true if you are married, have children or other dependents, have a mortgage, personal debt, or plan to pay for education expenses in the future.
To illustrate this point – the maximum amount of SGLI coverage ($400,000) was instituted in 2005…and hasn’t been adjusted since. In that time inflation averaged 2.3% annually, resulting in a cumulative change of over 47%.[2] Just to keep pace with inflation, the highest amount of available coverage would need to be $588,000 – ignoring the fact that many expenses life insurance is intended to offset (education, healthcare, housing) have increased more than average inflation rates. What was arguably an insufficient amount of “total” coverage in 2005 is even less sufficient in 2022.
How Much Coverage Do You Need?
Typically, life insurance needs are measured in terms of income replacement. How much are you making and how much will your family need to live comfortably in your absence? Since active-duty servicemembers can have salaries ranging anywhere from $25,000 to $150,000 per year, it can be difficult to put an exact dollar amount on what you will need. Still, understanding your life insurance need is a crucial part of a comprehensive risk mitigation strategy.
You may be an officer or senior enlisted individual with a combined salary, allowances, and specialty pays in the mid to upper $100,000s. When accounting for income, debts, children, dependents, and future expenses, you could need anywhere from approximately $1 to $3 million of life insurance coverage to mitigate their financial risks. If you are solely relying on the $400,000 SGLI benefit to meet these life insurance needs, you would come up short.
How To Bridge the Gap
There are many private insurance companies that offer supplemental policies to offset this gap in coverage. Keep in mind that your family may also be entitled to a monthly survivor benefit through various programs including Dependency and Indemnity Compensation (DIC), the Survivor Benefit Plan (SBP), and Social Security.
These additional benefits should be incorporated into your life insurance calculations, and they will help to reduce the amount of coverage you would need to obtain through third-party sources.
What About VGLI?
Veteran’s Group Life Insurance (VGLI) is offered when you leave the military. You can apply for VGLI within 1 year and 120 days from your discharge, and your coverage level will typically match what you had with SGLI.
In addition to understanding whether your coverage level offers enough protection, VGLI also comes with questions about getting the most bang for your buck. The rates veterans receive with VGLI are not competitive on the open market. Since you are no longer exposed to the risks of military life (combat, flight, scuba diving, shooting, etc.), your insurability increases dramatically after retiring from the military. As such, the cost of life insurance decreases and you have a good chance of finding more cost-effective policies from a third-party insurer. To learn more about your VGLI coverage and if it still makes sense for you and your family, look out for our upcoming article on this topic.
Understand Your Coverage Today
Regardless of your position or annual income, a comprehensive risk assessment is crucial for active-duty servicemembers. At Aviance Capital Partners, we believe that planning today can save you time, money, and stress in the future. If you would like a thorough insurance review or want to know more about your financial options as an active-duty servicemember, please reach out to us at wealthrelations@aviancepartners.com or call (239) 598-4747 to get started today.
As always, ACP is dedicated to supporting our troops through every stage of military life. If there is anything we can do to help you or your family during this time, please let us know.
Aviance Capital Partners, LLC (“ACP”) is an SEC registered investment adviser located in Naples, Florida. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that ACP has attained a certain level of skill, training, or ability. While information presented is believed to be factual and up-to-date, ACP does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of the ACP’s services will vary based upon the client’s individual investment, financial, and tax circumstances. The effectiveness and potential success of an insurance strategy and financial plan depends on a variety of factors, including but not limited to the manner and timing of implementation, coordination with the client and the client’s other engaged professionals, and market conditions. The insurance and financial planning information provided is general in nature, which should not be construed as specific advice tailored to an individual reader. ACP suggests that readers consult a financial professional, attorney or tax advisory professional about their specific financial, legal or tax situation. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment or investment strategy, including those undertaken or recommended by ACP, will be profitable or equal any historical performance level. Additional information about ACP, including its Form ADV Part 2A describing its services, fees, and applicable conflicts of interest and its Form CRS is available upon request and at https://adviserinfo.sec.gov/firm/summary/146597.
[1] Servicemembers’ Group Life Insurance (SGLI) | Veterans Affairs (va.gov)
[2] $1 in 2005 → 2022 | Inflation Calculator (in2013dollars.com)
