SGLI, VGLI, FSGLI and Military/Government Retirement
Transitioning military veterans from SGLI, FSGLI to VGLI and other options
The U.S. Government recently raised the SGLI (Servicemember Group Life Insurance) coverage limit per servicemember to $500,000/00 from $400,000/00. This change means more death benefit and hopefully greater help for the families of our fallen heroes. This was a major update to SGLI, but upon conversations had with fellow soldiers after this change, I realized just how little those serving understand their life insurance benefits provided to them.
All service members have the ability to reject, accept, or alter their SGLI coverage throughout the course of their service. Those that choose to tough it out to that golden 20 year retirement mark actually have a chance to keep that coverage upon retiring. This is known as Veteran Group Life Insurance or VGLI. Now there are some pros and cons to converting and using this benefit and we aim to help those in this situation understand them.
Pros of SGLI to VGLI
The SGLI coverage amount that you choose during service is actually the exact amount the government will let you carry over into your VGLI coverage. This means as a middle aged adult you can guarantee at least 1/2 million dollars in coverage for your family without the need of a medical exam or underwriting. The premiums are also standard rates based on age brackets that everyone pays. This means there is not a dedicated extra fee for things like nicotine usage or pre-existing conditions. The biggest advantage I think is the convertibility benefit. Within 120 days of being separated you can convert your SGLI plan to a either VGLI or to a privately owned individual plan based on the VA’s approved vendor list of about 11 companies. These are permanent policies, known as whole life plans, that come with cash accrual benefits. In the private sector these plans can be difficult to obtain in large amounts and are often very expensive. Under this benefit however, companies only charge standard rates and may only ask medical questions to improve your rate, not worsen. Lastly, if you choose regular VGLI you will have the ability to always convert that plan over at a period of your choosing.
Cons of SGLI to VGLI
Only one company (Prudential Life) offers the official VGLI coverage and therefore there is no real shopping the price or type of plan available under that benefit. It is a 5 year renewable term, meaning every 5 years it increases in price and will do so for the remainder of the coverage. This can become quite expensive as you age. Unlike a whole life plan, the money put into the VGLI term does not accrue cash value and does not have any beneficial riders, such as accidental death or living benefits. If you are healthy and have no diagnosis or illnesses, you most likely can do much better in both the plans and premium costs on the private market than the guaranteed standard rates offered by VGLI or the conversions. Although the $500,000/00 benefit is large, for some it may not be large enough. If in the position where more than that limit is desired, you will have to look in the private market.
The above options for SGLI also apply to spousal benefits under Family SGLI. These options are great if you can not be approved for a private policy due to illness, disability, or nicotine usage. It can guarantee coverage with either the renewable term offered by VGLI or the whole life plans offered by the approved conversion lists. Here at Bay Life we can help you find the right whole life plan to convert your SGLI or VGLI coverage to.
We highly recommend however that if you are healthy enough for a private plan, you let us explore the vast benefits and opportunities available to you on the open market. You do not have to be trapped in a VGLI term plan increasing in costs. There are straight term plans that stay steady in price for a level contract period. You can also save a lot of money in premium if healthy enough to get above standard rates, which almost every company offers for all products. Lastly, additional policy benefits such as indexed account options, living benefits, disability income, accidental death and children’s coverage are not available through your service related benefits. These are often inexpensive and sometimes free riders that can provide great benefits to the insured.