4 Questions About Life Insurance to Consider When My Spouse Retires

Questions About Life Insurance to Consider When My Spouse Retires
A military spouse places a retirement pin onto the uniform of her husband at his retirement ceremony in June 2021. (U.S. Air Force/Joshua J. Seybert)

Military life insurance does not continue automatically after retirement or separation. There are decisions to be made, but what you may not know is how important -- and time sensitive -- that decision can be.

For some military families, this may be the first time they've had to consider life insurance coverage, ever. It's a good time to figure out what specific questions need to be answered.

When Should I Start Looking?

One of the perks of military service is inexpensive life insurance for the whole family. For service members, the maximum amount of coverage available under the Servicemembers' Group Life Insurance, or SGLI, is $400,000; for spouses, it's up to $100,000; and dependent children are covered at $10,000 each.

Melissa Schreur, a Coast Guard spouse and owner of Insure the Heroes -- an independent insurance brokerage -- recommends exploring civilian policies before the service member retires for several reasons. Life insurance premiums generally are based on age and health. They're cheaper when you buy them in your 30s, compared to your 40s, and if you are opting for term life insurance -- the kind that is only for a set number of years -- you can start that window now.

Schreur advises starting at least a few months in advance.

"The average timeframe is 1-2 months [from deciding on a company to getting coverage]," said Schreur, adding it can take as long as six months.

Going through this process may require paperwork, phone interviews, checkups, blood tests and sometimes discussions with doctors. Because of the pandemic, keep in mind that things are backed up and can take longer.

How Much Coverage Do I Need?

Policygenius, an online insurance marketplace, recommends insurance coverage of 10 to 15 times your annual income. For stay-at-home spouses, consider how much it would cost to pay someone to care for children, a housekeeper, etc., when looking at a coverage amount. Military spouses don't get to keep their Family Servicemembers' Group Life Insurance (FSGLI) coverage after their service member retires or separates. And the kids aren't covered anymore, either.

"The FSGLI does not continue, though it can be converted into a whole life insurance policy with participating insurance companies," Schreur said. "The conversion option is beneficial in the event a spouse is uninsurable, as there is no health underwriting.

"Most spouses contribute much more [than $100,000] to their households financially, whether they are a homemaker, employed, own a business or a combination," she said. "Financial advisers suggest homemakers carry supplemental life insurance. Many times, a homemaker or working spouse will carry either the same amount as the family breadwinner or close to that amount."

What Kind of Life Insurance Do I Need?

There are two kinds of life insurance: whole life and term. Whole life is coverage for the rest of the insured's life, as long as the premiums are paid. Term coverage is for a set number of years, usually for 10, 20 or 30 years.

Military financial coach Kate Horrell wrote that those who can obtain a civilian policy usually go that route because it's more affordable. Personal financial situations, health conditions and financial goals all play a role in deciding what kind of policy to get, but Horrell says you want to have this figured out before retirement so you can make decisions about the Survivor Benefit Plan.

Term life insurance costs less because there is no cash value to it. One reason to choose term life insurance is to make sure that the mortgage is covered or child rearing costs are covered. After a certain age, you may have enough in savings to cover burial expenses and won't need insurance.

But if you want to leave money to your heirs, no matter when you die, a whole life insurance policy will do that. It's also a good option for people who have children with disabilities who may need long-term care. There are pros and cons to both kinds of coverage, as NerdWallet, a financial website, explains.

By looking at the coverage you currently have through the military, you can start figuring out what you need after retirement.

Should I Get Military Life Insurance or a Civilian Policy?

Another thing to consider is that service members have the option to continue with their military life insurance after retirement or separation through Veterans' Group Life Insurance (VGLI). The application must be submitted within a year and 120 days from their discharge and can only be for as much coverage as they had under SGLI.

Veterans also can convert their SGLI to a civilian policy within six months of separation. Those who meet specific disability requirements can keep their SGLI coverage for up to two years after separation.

The cost for VGLI coverage is significantly more than the SGLI coverage and is based on age and amount of coverage. For a 40- to 44-year-old with $400,000 coverage, the premium is $64 a month. It's $396 a month for a 60- to 64-year-old and $1,800 a month for someone over 80.

The main advantage to VGLI coverage is the absence of a health screening or review when applying during the 240-day no health application period. For some veterans, this is their only life insurance option due to pre-existing conditions. VGLI is a whole life insurance policy and does not increase premiums based on gender or smoking status. It is based on age only.

A civilian life insurance policy's biggest advantage is its options. Coverage can exceed the $400,000 offered by the VGLI, and premium costs vary based on company. Your age, health, smoking status and family history can factor into the cost of coverage, which may work in your favor.

"I recommend military families review their need for life insurance and their financial plan two to five years out from separating the military," Schreur said. "It's important for families to not only look at insurance coverage as an 'I'll do this closer to retirement task.' The bigger question is, 'As of today, do I have enough life insurance to protect my loved ones?'"

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