Every enlisted service member should check their Servicemembers Group Life Insurance (SGLI) amounts and beneficiaries now. If it hasn’t been checked in awhile, now’s as good a time as ever. Also, it’s probably a great time to look at coverage amounts and decide if you have enough or too much coverage.
Servicemembers Group Life Insurance (SGLI) Amounts and Beneficiaries
If you didn’t know already, the SGLI maximum coverage increased from $400,000 to $500,000. More importantly, everyone currently in service was automatically enrolled and defaulted to $500,000 of coverage.
What Does That Mean?
No matter if you opted out of SGLI coverage or you had picked a different amount, you are enrolled at $500,000 of coverage effective 01 March, 2023. If you’re okay with the higher coverage amount, no harm. Just keep rolling. If you don’t want the new coverage amount or want to decline coverage, you have until 31 March, 2023 to make a change without having to pay the new premium.
Regardless, you still need to log in and check coverage and beneficiary designations. To check your beneficiary designations and make changes, go to the SGLI Online Enrollment System (SOES) (log in via MilConnect) to view and update coverage.
Why Do I Need to Check Beneficiary Designations?
For starters, the military has a terrible track record of rolling out changes and new programs. For instance, when they did the change of the Thrift Saving Plan (TSP) to the new website, a lot of beneficiary designations were lost/erased. We had our beneficiary designations completely blanked out.
Also, this is just a good excuse to go in and do a periodic check. For the most part, we might look at these once a year for records reviews. If you’re like us, we’re generally too busy or being rushed to knock it out by the HR specialist. This doesn’t lend itself to a thorough review.
It costs you nothing to make sure everything is squared away in case something happens to you. We highly suggest you take a look.
Is the Extra Coverage Needed?
Maybe, maybe not. This is a complicated and personal question. It all comes down to what you need the life insurance to do. If you’re on active duty or activated for 30 days or more, the combination of SGLI and Survivor Benefit Program (SBP) coverage may be adequate.
Note: While on active duty or reserve in an active status for 30 days or longer, your SBP premiums are covered. This may significantly reduce your need to have additional life insurance coverage.
For us, we calculated it would take roughly $1,000,000 of total life insurance with the SBP annuity payments to have the same standard of living. This breaks down like this:
- SGLI of $5000,000 (was $400,000)
- Additional Term Life Insurance of $500,000
- Death Gratuity of $100,000
Until the current change, our total coverage was $1 Million of life insurance and death gratuity plus the monthly SBP payments (increases with base pay changes). The extra $100,000 doesn’t make us have “too much” coverage per se.
It’s an extra $6 per month in premiums (deducted from pay) from what we were paying. We’re just going to leave it as is and roll on. However, if you don’t have any dependents counting on you for support, you might not need that extra coverage.
Decide What You Need Life Insurance For
At the end of the day, you have to understand what life insurance is for and what you need it to do for you. Life insurance is to take care of your funeral, burial expenses, and take care of those depending on you for financial support.
It’s not to leave a big inheritance to someone. It’s not as an investment. Life insurance is a tool to take care of your family and other financial affairs should you die prematurely.
Here’s the things we decided we need life insurance for as a family:
- Purchase a home in cash back home (Missouri for us)
- Fully fund 1 year of living expenses to transition/mourn the loss (we think we’re pretty special)
- Generate enough income to equal 75% of current pay
We figured if the house was paid off and there was a steady check coming in (SBP payments), then a little less than the current family income would be just fine.
Other Ways to Look at Insurance
Some people may look at income replacement or even figuring a value of someone’s lifetime earnings. This gives an amount of money needed to replace any lost income.
We’ve heard figures such as 10 times annual income. This is just a rule of thumb. In all reality, this ends up being fairly close to the coverage we have if you count total military compensation (BAH, etc. ).
Creating Income from Life Insurance
The last thing we’ll touch on is how to approximate what an insurance payout actually provides you. The $500,000 SGLI benefit is paid to your beneficiaries tax free (lump sum or over 36 months). Then they have to put the money somewhere and then draw from it as income.
This is similar to creating retirement income from your TSP or an IRA. You would draw a certain amount per year to live off of. Following the 4% rule of thumb, $500,000 would provide $20,000 of income per year or $1,667 per month.
For us, this wasn’t enough to cover all living expenses. However, with the additional term life insurance we purchased and the SBP payments, there’s plenty to live a decent life. Granted, it’s not our preferred option (we like the idea of living longer), but we’re prepared to take care of the family in life or death.
Action Items
- Log into SOES and check your coverage and beneficiary amounts
- Decide what you need life insurance for and how much you need
- Ensure everyone in your family knows the plan
We hope this is helpful to you as you think about the proper amount of life insurance to have. Make sure you’re taking care of the big stuff so you can rest easy knowing your family is taken care of.