Author – Joe Turkal, LtCol (Ret) USMC
In December 2024, I wrote an article called “Top Five Issues for Transitioning Active-Duty Military Members”. The article focused on the intangibles of transition and leveraged the work of the noted psychologist Abraham Maslow published in the mid 1900’s, which laid out the hierarchy of human needs, specifically, Psychological, Safely, Love/belonging, Esteem, and self-actualization. I attempted to use Maslow’s framework to highlight mostly intangible needs to address in transition. https://sierrahotelfinancial.com/top-five-issues-for-transitioning-active-duty-military-members/
In a three-part series of articles, I will use the experience gained through my transition after 30 years in the Marine Corps along with my experience as a financial planner/advisor who predominately serves active military and veterans to address concrete financial issues that are not adequately covered in the congressionally mandated transition courses provided by the military services. . The series will consist of three articles 1) Mitigating temporary loss of income, understanding equivalent salary compensation, and awareness of potential budget pitfalls. 2) Non-salary benefits to consider when evaluating your next potential employer (even if you plan to be self-employed). 3) Considerations to mitigate risk of unexpected death (i.e. how to evaluate private life insurance, Veteran’s Group Life Insurance (VGLI), and Survivor Benefit Program (SBP).
This is the third and final article in a three-article series and it is focused on considerations to mitigate risk of unexpected death (i.e. how to evaluate life insurance and Survivor Benefit Program (SBP)) when transitioning from active-duty military to civilian life. This is a crucial area to address before during and after transition from the military. Sadly, service members are often not educated on how to mitigate unexpected death and how to determine their need. They are even less informed on the benefits available to address their needs. The transition course falls far short of fully informing the service members how to determine their needs, what combined resources are available, and how to determine an overall long-term strategy to address the need. There are three main resources/benefits available to service members namely, private life insurance policies, the Veteran’s Group Life Insurance (VGLI) and for members with a spouse, dependent children or close relatives with an insurable interest, the Survivor Benefit Plan (SBP). Beyond that, I will also discuss the concept of self-insuring oneself as part of a comprehensive strategy. Let’s start with private life insurance.
Life Insurance
Active-duty members become accustomed to the low-cost Servicemembers Group Life Insurance (SGLI). This affords the service member $500,000 coverage in the case of death, including death in a combat zone (which is NOT the case for private insurance that typically does not pay for death in a combat zone) and Traumatic Servicemembers Group Life Insurance (TSGLI), which pays a lump sum between $25, 000 to $100,000 for sustained traumatic injury suffered in the line of duty. They also have an option for low-cost Family Servicemembers Group Life Insurance for $100,000 coverage on their spouse, as well as no cost $10,000 coverage on children. Both SGLI and FSGLI terminate 120 days after end of active-duty service (EAS) (at no cost), TSGLI terminates at EAS (though you may make a claim up to two years after EAS if you suffered a traumatic event prior to EAS and suffer a loss from that event within those two years after EAS). I typically recommend that service members begin the process of applying for a private life insurance policy about 3-6 months prior to EAS. Even though the SGLI will cover you for 120 days after EAS, the application process can be lengthy and almost always requires a medical examination. All members should be evaluated for any Veterans Administration (VA) disability rating when terminating active duty. The process known as Benefits Delivery at Discharge (BDD) is a great advantage for active duty to get expedited handling of their claim. This can be submitted between 180 and 90 days from EAS, and I highly recommend submitting the claim in this period. I also recommend finding a Veteran Service Organization (VSO) to assist in filing. A VSO will assign a volunteer representative who is trained and certified to assist a military member to submit the claim properly to the VA. There are many non-profit VSOs for example Wounded Warrior Project (WWP) and Disabled American Veterans (DAV). Though this article is not focused on VA disability, I bring up this context in light of applying for life insurance on the private market precisely because there will be a medical exam and medical rating assigned by any insurance company. The better one’s medical rating, the lower the premium he/she may be offered. In some cases, individuals are rated as uninsurable based on their medical history or the medical exam. When a member initiates the BDD process, the VA will require medical evaluations on all conditions that may qualify for disability, so it is always best practice to get the insurance medical rating before going through the VA process potentially places new condition into your medical record. The insurance companies will review medical records, and it is quite possible that the VA process could result in a condition in one’s medical record that worsens the insurance medical rating, or even make the individual deemed uninsurable. I always recommend that all separating service members apply for private insurance, because, though it does take some time and effort, getting a favorable medical rating will provide the option of private life insurance and does not oblige an individual to commit to the policy. Depending on the insurance company, the medical rating is typically good for a period of 3-6 months while the individual decides. This time will allow the service members to complete the BDD process, EAS, and determine their insurable need.
Now let’s turn our attention to one of the more complicated benefits that a separating service member must consider, the Survivor Benefit Plan (SBP), but before we do, a word to the wise. When determining your insurable need, be very skeptical of insurance agents, who also have the ability to act as advisors, analyzing your insurance need. Understand that there is a conflict of interest because an insurance agent will be paid commission on the policy sale. The larger the policies sold, the larger the commission. Yes, there are honest insurance agents, but I recommend getting a needs assessment by a third-party fee-only or volunteer financial advisor, who you can be confident is working in your best interest. Your goal should be sufficiently mitigating your risk at the lowest possible cost, so find a professional committed to helping you achieve this. Lastly, you will likely wade through the option of a permanent life policy (such as a whole life policy) or a term policy. If you want to mitigate your risk at the lowest possible cost, a term policy is almost always the right option. This is outside the scope of this article, so again rely on advice from a third part fiduciary to assist with this decision.
Survivor Benefit Plan (SBP)
This applies only to members who are separated, have earned retirement and have at least one of the following: spouse, dependent child/children, former spouse, or insurable interest (defined as relative more closely related than a cousin who would be financially affected by the member’s death). I will only focus on the spouse, and I will not address the former spouse or insurable interest. I will not address children in detail, but rule of thumb is that choosing SBP for children is relatively low-cost and ends when they are 18 years of age or 22 years of age if in full time student status. This is typically a good decision for the opportunity cost.
What is SBP? SBP is a Department of Defense (DOD) program that is automatically selected unless the service member takes action to decline the benefit, and declining SBP must be accompanied with the spouse’s consent via a signed, notarized form. Essentially, the member’s spouse is empowered to make the final decision. If selected, the member agrees to give up a portion of their retirement pay, so that if the member passes before the spouse, the spouse will receive a portion of the retirement for the remainder of his/her life. You may ask, is there a simple rule to know if it is a good decision to choose or decline the benefit. There is no simple rule of thumb. The best way to evaluate whether the decision is wise is to do the math based on each member’s specific situation. The monthly premium and the percentage of retirement the spouse receives depends on several variables. Firstly, it depends on the basis of earned retirement. A service member and spouse can choose a basis between $300 and full retirement pay. For service members who entered the military after March 1st, 1990, and retiring for length of service (not reserve retirement), the monthly premium will cost 6.5% of you chosen base amount (other scenarios may have a slightly different calculation, but this article will only focus on the factors above). So, let’s say your full retirement benefit is $4,000 per month, and you choose this as your basis. Your monthly premium will be 0.065 x $4,000 or $260 per month and in return, if you pass before your spouse, your spouse will receive 55% of your base amount or (0.55 x $4,000) $2,200 per month for the rest of his/her life. Now, let’s assume that you and your spouse analyze your specific risk mitigation and conclude that you would like to change your base amount to $2,000. So, your monthly premium would be (0.065 x $2,000) $130 and if you passed your spouse would receive (0.55 x $2,000) $1100 per month.
So, should I elect SBP, and should I elect it on a full basis or a reduced basis? The best way to evaluate this is to evaluate your current specific situation and balance that with current assets, insurance policies, age difference and risk tolerance of both you and your spouse. Sound complex? It is. What you should do is put into place a risk mitigation strategy that both you and your spouse agree on. A good litmus test is to ask yourself, “if I die tomorrow, am I comfortable with my risk mitigation strategy for my spouse?” Here is a strategy to consider that may satisfy your needs if you decline the SBP benefit. I feel comfortable that if I pass away tomorrow, between the term life policy and savings and fixed income, my spouse will be able to cover all bills and live at a comfortable standard of living. You may ask, what if I decline SBP and then I die after the term policy expires? In this case you must have a strategy to save and invest during the period the policy is in place, such that once the policy expires, you can self-insure. What does self-insure mean? This means that between fixed income (i.e. annuity, Social Security, disability, etc.) plus annual withdrawals from invested accounts the income generated will be sufficient to meet financial needs for your spouse for the remainder of his/her life. This should also assume that you can generate enough income from interest from investments without drawing the principle down. Generally, you can use the 4% rule for investments earning an average annual gain of about 5% to 7%. This rule states that you to safely withdraw 4% of the savings invested per year without drawing down the principle — this translates to about $1,000 of income per month for every $300,000 dollars invested.
There are some life factors that may make SBP the best choice for retiring service members. I will make a caveat to all this SBP information with the disclaimer that every situation is different and should be analyzed on a case-by-case basis. But generally, SBP will likely be the best choice for those who do not have an adequate term policy in place and are uninsurable due to health conditions. Private life insurance is almost always predicated on having a qualified health rating (typically, individual policies with no medical exam requirements are too small to be able to adequately mitigate risk). Even if the member will be obtaining employment that provides a group life policy (group life policies typically do not require health exams because the company spreads risk among the group), that would adequately cover risk, that policy will only stay in effect for the period of employment. A work benefit insurance policy is typically affordable and may provide adequate coverage, but the risk of losing that employment is a significate risk. A retiring member also has the option to choose the Veteran’s Group Life Insurance for a limit of $500,000 policy. The VGLI does not require a health exam, but it is limited to $500,000, which may or may not be an adequate amount, and premiums rise rapidly as you age (this will be analyzed in depth in the next section).
Another main demographic factor that weighs heavily into the decision, what is the age difference between retiree and the spouse? If the spouse is significantly younger than the retiree, this may also make SBP the best solution because chances are the spouse will outlive the retired service member by a significant number of years. Lastly, some retirees and spouses are predisposed to be very risk averse. Ultimately, there are those who simply feel more at ease knowing that the spouse will have monthly payments for the rest of his/her life. What is peace of mind worth? It is likely worth the cost of the monthly premium for SBP.
Veterans Group Life Insurance (VGLI)
You have separated from military service and have reached your EAS. You should be aware that you are covered by SGLI for 120 days beyond your EAS –this is provided free of cost. The problem is beyond those 120 days, a responsible former service member should mitigate a tragedy with life insurance coverage after those 120 days expire. Every separated military member has the option to replace the SGLI with the VGLI. You also have 120 days beyond EAS to apply for VGLI. VGLI may not be the best option. In fact, for most separated members it is not the best option. VGLI is term life insurance, meaning as long as you pay the premium you are insured. If you stop paying your premium, your coverage stops. The VGLI may look like a low-cost option, and a good feature is the term never expires so long as you continue to pay the premiums. The problem is that as you age the annual premium is raised to the point that it is far too expensive for the coverage offered. In essence, though the term does not expire so long as you pay your premium, you will eventually be priced out forcing you to stop paying the premium. To look at premiums by age here is the Veterans Department website for reference, https://www.va.gov/life-insurance/options-eligibility/vgli/. To give you an example without going through the entire premium table, at age 39 for $500,000 of coverage the monthly premium is $60.00. Not bad, right? However, at age 60, for the same coverage, the monthly premium is $495.00 per month and at age 65 the monthly premium is $735 per month. Typically, I recommend service members check the private insurance market for a 20 or 30-year term policy to mitigate that risk. Much of the time, if you are a non-smoker and in average or better health, your premiums over the life of the policy will be much lower. You may wonder, what do I do when the term ends and I no longer am insured? My answer typically is to celebrate. Life insurance needs are reduced or are completely eliminated once your children are independent, you have no or low debt and have built up sufficient savings. The smart strategy is to build retirement savings, so that once your insurance needs are reduced later in life, you have saved enough to be self-insured
Now the question remains, how I determine my insurable need? The first question to ask yourself is, what is available currently if I die unexpectedly. Specifically what insurance policies, and what assets are available (i.e. savings, real estate, etc.). Next, understand what debt is outstanding if you were to die unexpectedly. Then one must ask what will my family need if I pass unexpectedly? Lastly, what standard of living do I want my family to have if I die unexpectedly. Tough questions to answer I understand. Everyone’s situation is different and should be assessed individually. The first two variables, assets verses debt is the most straight forward analysis. The next two, family needs and standard of living, are more subjective, but can be defined and quantified. Again, the scope of this article does not allow me to provide methodologies, I will simply suggest again seeking an objective financial profession to assist.
While your insurable need should be pursued through a financial advisor (preferably one that does not also sell insurance), we have created this calculator which will give you a rough estimate of your “human life value” (this is the term used by the industry). It is a very simple calculation that shows roughly how much would be needed to replace your income minus your half of the expenses until retirement. Some use this as a basis of their insurable need, we typically prefer a more detailed approach. However, if this number is different than what you were expecting, it’s probably time to consult an expert.
In this three-part series of articles, we provided separating active-duty members of the military with a wide array of financial considerations not adequately covered in mandatory transition courses along with actionable recommendations. Planning ahead and establishing a checklist and timeline will help to reduce the stress of transition. I encourage all separating military members to take advantage of free transition courses and training events but also take advantage of financial analysis before transitions to help prepare. These may be available through your installation services and there are fee-only fiduciaries that provide the service for free.
Joe is the co-founder of Sierra Hotel Financial (SHF) with his son Spencer. SHF is dedicated to serving active-duty military and veterans. As part of our commitment to value upfront for veterans and their families, we provide a complimentary three meeting comprehensive financial analysis with recommendations (i.e. Financial Plan). At the time of writing this article, we have produced 107 complimentary plans for active military and veterans. If you are active duty or a veteran and want to take advantage, use our calendar link to schedule your introductory meeting:
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