Life insurance options for military and veterans

Active duty servicemembers are provided with group life insurance from the government.

But what happens when you leave active duty? Do those life insurance benefits transfer when you become a veteran?

Insider spoke with former servicemember Rob Schaffer, general manager of life insurance at USAA, about the different options for active duty and veterans.

Active duty military have SGLI group life insurance
Schaffer said active duty servicemembers are offered group life insurance of up to $400,000, known as Servicemember’s Group Life Insurance (SGLI). SGLI is provided through the Department of Veterans Affairs.

If you’re active duty, you’re automatically signed up, but you can opt out of coverage.

Group life insurance is generally the cheapest life insurance you can get. If you die while employed and enrolled in your employer-provided group life insurance, your beneficiary will receive your death benefit.

Unfortunately, once you’re no longer active duty, you lose SGLI.

You lose SGLI when you are no longer active duty
Once you leave your job or are no longer on active duty, you lose your employer-provided group life insurance. This is true for SGLI group life coverage.

Schaffer said that during the “transition assistance program” that occurs 3-5 days before exiting the military, there’s a discussion about switching to Veterans Group Life Insurance (VGLI). However, active duty servicemembers exiting service have 240 days after leaving service to automatically switch to VGLI. Otherwise, they would have to qualify for it by going through underwriting to prove you’re in good health.

What’s the difference between SGLI and VGLI
Both SGLI and VGLI are provided by the Department of Veterans Affairs. SGLI is for active duty military. You are automatically enrolled in SGLI and can increase coverage up to $400,000.

VGLI is for veterans. You are not automatically enrolled in VGLI. You have 240 days after leaving service to opt in to VGLI. This means that if you had $300,000 in SGLI benefits, VGLI will give you the same amount of benefits without requiring you to go through underwriting or prove you’re in good health. If you miss the 240 day period, you have to apply and prove you’re in good health.

Schaffer said that over time VGLI coverage becomes expensive because it increases every five years and by the time veterans are 65 years old, it’s basically unaffordable. This is because although VGLI is a group life policy, it operates similar to an annual renewal term (ART) policy.

Annual renewable insurance is relatively cheap if you are young and healthy, but renews each year and becomes more expensive as you age. Schaffer said this works for most servicemembers leaving active duty because the average age exiting service is 25 years old. However, because the rates go up every five years, like other annual renewal term policies, you should eventually switch to a traditional term life policy because you will ultimately end up paying more for VGLI than a traditional term life policy.

*Free if you are totally disabled

Do veterans get free life insurance
Schaffer said that if a veteran is totally disabled, then they can get free life insurance through VGLI. Otherwise, veterans must pay for insurance using VGLI or through an individual carrier. The good news is that some companies offer discounts or benefits for military and veterans like USAA and GEICO.

How much does SGLI and VGLI cost
According to the Department of Veterans Affairs, the “current basic SGLI premium rate is 6 cents per $1,000 of insurance coverage [and] includes an additional $1 per month for Traumatic Injury Protection coverage (TSGLI).”

VGLI rates vary greatly based on your age and coverage amount. The rates were recently updated in April 2021. For details based on age and coverage amount, visit the Department of Veterans Affairs website for VGLI coverage.

If you don’t have SGLI or VGLI, you need individual life insurance
If you are active duty and elected not to have SGLI benefits or if you are a veteran and didn’t opt in for VGLI benefits, then you will need to get private individual life insurance coverage from carriers like USAA or New York Life.

That means that you have to go through traditional underwriting. The underwriting process is how the insurance company determines your insurability — determining how much of a risk you are and how much to lend you.

It collects information about your health (medical history), job, income, finances, and other personal information to determine how much they will insure you and what your premium will be. It may require a medical exam, which includes the collection of a blood and urine sample.

There are two main types of insurance — term and permanent
However, it’s important to understand that there are two types of life insurance that have different products. There are two main types of life insurance policies to choose from: permanent life and term life.

Term insurance lasts for a specified period, and when it’s up you can reapply for coverage, but the premiums most likely will go up as you age and your health deteriorates.

Permanent life insurance has a death benefit for your beneficiaries and a cash value that you can use during your lifetime. It’s like owning a home, where you gain equity that can be used as collateral — and your home can be left to your heirs leaving a legacy.

Schaffer said that USAA life insurance offers a benefit for active duty and veterans with coverage equal to their SGLI amount when they apply for individual coverage. “For military members who own a USAA
term life insurance policy, we provide a a 360 day window after separation or retirement from military service due to loss of Service members’ Group Life Insurance (SGLI) coverage. This period is extended to 2 years and 240 days in the event of the service member’s medical retirement.”