Life insurance basics for your military transition

Life insurance may be one of the most important investments you will ever make, and it is a key decision during a military transition. But before researching types that exist, you first need to answer the question: do I really need life insurance?

Retired Army Colonel Carlos Perez, Treasurer at AAFMAA, says the answer is pretty straightforward.

“You need life insurance if somebody else is dependent upon you for income,” he explained. “Most people do have some need; almost everybody has somebody that depends upon them in some way.”

The level to which that person, or people, depends on you also helps determine how much life insurance you need. Next comes the process of incorporating the right coverage into your military family’s overall financial security plan — a critical part of a transitioning service member’s success, Perez adds.

[Try the life insurance calculator for estimates based on your needs.]

What’s the process for getting life insurance?

To start the process of applying for life insurance, you must first complete an application that collects basic information on your demographics and health. A first premium will also be collected as part of the application process, Perez says (the premium would be refunded if the policy is not subsequently issued by the insurer).

Your information is then sent through the underwriting process to do a risk analysis, and once that risk is measured, your premium structure is calculated. For example, if you are in overall good health, the process can be straightforward, Perez explains. However, if there are some medical conditions in your profile, an underwriter may need to analyze additional information, such as lab work or a physical. Once the full review is complete, the insurance company issues a decision.

TIP: Don’t be afraid to answer questions honestly. Insurance companies often take into account conditions that are considered average for your demographic, including age.

Types of policies

Most service members are familiar with term insurance because SGLI is a type of term insurance. Perez equates this type of policy with car insurance in that you pay a premium monthly for a term of time — five years, 10 years, 30 years, etc., and during that period you are covered.

“Because of how it’s structured, with term insurance you get relatively large death benefits for relatively more affordable premiums compared to whole life, or permanent insurance. For example, here at AAFMAA you can get up to $800,000 of term insurance at a relatively inexpensive cost,” Perez said.

Overall, term insurance is considered to be more budget friendly, but it has an expiration date. It is also a good fit for families with large financial obligations like a mortgage, child care or college-bound kids.

Perez, who served more than 26 years, secured a civilian life insurance before leaving the Army. He advocates for service members to get a policy as young as possible because it “locks in affordable premiums.”

“Before I left the service, I bought an AAFMAA Level Term II life insurance policy with a death benefit of $800,000 — it’s a term policy. My premiums will never change; it covers me until I’m 74,” he said.

The other policy option is called whole life insurance, which provides permanent coverage until death, as long as the holder keeps it current or is paying premiums. In fact, you can pay the policy in full, if preferred.

The main benefit is that the policy lasts the duration of the policy holder’s life, but similar amounts of coverage to term cost more. Though, Perez points out, whole life insurance offers the following additional benefits:

The policy builds cash value,
As you build that value you can cash it out or borrow against it,
Proceeds generally pass tax free to heirs, and
In some cases, subject to IRS eligibility criteria, such as for long term care or terminal illness, you can use some or all of the death benefit to defray costs while still alive.

Premium costs

So, what does the rough cost of a life insurance premium actually look like? Perez shared estimates from AAFMAA’s rates:

Policy holder between the ages of 18-50 who qualifies for level term 1:

$18.15 per month for $400,000 worth of coverage.

[To put in perspective, SGLI is roughly $24 per month]

Male policy holder age 50, non-smoker for a 20-year term policy:

$95 per month for $400,000 worth of coverage

As service members navigate the complex process of transitioning out, several decisions have to be made about careers, location, medical and dental plans, education and more. Reflecting on his own experiences in going from soldier to civilian, Perez learned that financial security sits at the center of a successful next chapter. AAFMAA’s website offers a learning hub to help your family face those choices in an informed way.