Veterans life insurance: What you need to know

Information courtesy of USAA Life Insurance Company and USAA Life Insurance Company of New York

Josh Andrews, a USAA Advice Director, is one of about 18.5 million U.S. military veterans. After 20 years of active-duty and Reserve service, he's now part of the 75% of Post-911 veterans under the age of 45.

That matters because Andrews is squarely in his earning years. In the event of his death, his family would need to replace his income to pay their monthly bills and expenses — including things like their mortgage and kids' college expenses.

Because of his experience as a CERTIFIED FINANCIAL PLANNER™ professional working with USAA members, Andrews understands the unique position veterans are in — and why life insurance is so important. “A lot of times, veterans have disabilities as a result of their service that could shorten their lifespan. They've also moved around a lot, so maybe they're buying their first home and taking on what is probably each person's largest debt, a mortgage,” he says.

“The bottom line is that veterans need life insurance for the same reasons as anybody else,” says Andrews. “When they were active-duty, they had Servicemembers' Group Life Insurance (SGLI). But the need for life insurance didn't go away when they left the military.”

If you've already transitioned from military service to civilian life and are comparing the types of life insurance for veterans, there are several points to keep in mind. Read on for tips on finding a policy that fits your needs.

Options through the Department of Veterans Affairs

Active-duty servicemembers have Servicemembers' Group Life Insurance. But SGLI coverage eventually goes away after retiring or separating.

After that, your choices through the VA are as follows:

Veterans' Group Life Insurance

According to the VA, veterans and former servicemembers are eligible for Veterans' Group Life Insurance (VGLI) if at least one of the following applies:

• They had part-time SGLI as a member of the National Guard or reserve and suffered damage to their body or mind while on duty.
• They had SGLI while they were in the military and are still within one year and 120 days of being released from a 31-plus day period of active duty.
• They are within one year and 120 days of retiring or being released from the Ready Reserve or National Guard.
• They are within one year and 120 days of assignment to the Individual Ready Reserve of a branch of service, or to the Inactive National Guard.
• They are within one year and 120 days of being put on the Temporary Disability Retirement List.

VGLI offers between $10,000 and $500,000 in term life insurance benefits, and the amount veterans are eligible to receive is based on how much SGLI coverage they had when they left the military.

If veterans sign up for VGLI within 240 days of leaving the military, they won't have to prove they're in good health. After that 240-day period, a health assessment is required.

Read more about VGLI.^{See note1}

Service-Disabled Veterans' Life Insurance

S-DVI provides life insurance coverage to veterans who have been given a VA rating for a new service-connected disability in the last two years. Through this option, totally disabled veterans can get free coverage and have the opportunity to buy additional life insurance.

Eligible veterans can apply online or by mail.

Read more about S-DVI.^{See note1}

Veterans' Mortgage Life Insurance

VMLI provides mortgage life insurance to disabled veterans who've been approved for a VA Specially Adapted Housing (SAH) grant.

This option provides up to $200,000 in mortgage life insurance, which the VA pays directly to the lender who holds the policyholder's mortgage.

Step one in receiving VMLI is applying for an SAH grant. Once veterans have the SAH grant, their loan guaranty agent can let them know if they qualify for VMLI.

Learn more about eligibility rules and benefits of VMLI.^{See note1}

Comparing VGLI to private insurance

When people apply for life insurance, most insurers require a health review to determine eligibility for insurance coverage. Certain medical conditions, such as post-traumatic stress disorder, can make it more expensive to obtain private insurance.

On the other hand, when veterans sign up for VGLI within 240 days of separation, there are no medical requirements — regardless of the severity of their health conditions. Be sure to compare VGLI to private life insurance if you meet VGLI eligibility criteria.^{See note1}

As long you pay premiums, VGLI provides guaranteed coverage. Its rates are set by age and coverage, regardless of gender or other lifestyle habits, such as nicotine use.

Benefits of private coverage

Because VGLI is a term life policy with premiums that increase quickly as you age, there are benefits to private coverage.

Some private policies offer a level term and can save you a significant amount of money over the scheduled duration. The following chart was created with data from va.gov. It shows the rate at which $400,000 of VGLI monthly premiums increase as a veteran gets older.

Let's say a 45-year-old man is comparing a 30-year level term policy for $400,000 from a private insurance company to VGLI with those same parameters.

Adding up the scheduled increases, VGLI would cost a total of $140,640 over a 30-year period for $400,000. That's an average monthly premium of $391.

For comparison's sake, let's say a private-level term policy cost $132 a month — the same as a 50-year-old would pay for VGLI. Adding up those premiums, private coverage would cost a total of $47,520 over a 30-year period for the same $400,000. That's an average savings of $259 per month — or over $93,000 in premiums assuming they were both kept for 30 years.

The takeaway? If healthy, the veteran could save thousands with private term insurance. And the savings could make the medical underwriting well worth it.

Pay special attention if you're approaching retirement with continuing life insurance needs. With VGLI, the premium increases later in life – when you may need coverage the most – which can conflict with a fixed income. On the other hand, you may be able to settle on a level term that fits your budget and provides level protection into your 70s or 80s.

Here's another point to consider: VGLI offers a maximum death benefit of $500,000, which may not be enough to cover your needs. Private coverage offerings for permanent life insurance are more robust.

In addition to private life insurance's higher coverage amounts, it can also offer the policyholder the opportunity to customize their policy with various riders and benefits.

Next steps for veterans shopping for life insurance

The following resources can help, depending on shoppers' life stage and career:

• Veterans who want to learn more about VA offerings can visit VA.gov.^{See note1}
• Active-duty military can learn more by reading our article, Servicemembers' Group Life Insurance: How to know if it's enough.
• Separated or retired servicemembers can learn more about USAA's life insurance offerings via usaa.com/life.

The bottom line? If you're preparing for separation, it's important to review your options in advance. Compare the offerings from the Department of Veterans Affairs with those of private insurers to determine what's best for your needs.