Servicemember's Group Life Insurance (SGLI) is an important benefit the military provides for you and it should be factored into your financial plan. But in order to include it, you need to understand it.
What is SGLI?
SGLI is a government subsidized life insurance program for members of the military. It is essentially the same thing as group term life insurance provided by many employers. You pay for SGLI through deductions from your pay. The maximum death benefit, the amount received by your beneficiary, is $400,000 and thee minimum amount of coverage is $50,000. You must purchase SGLI in increments of $50,000. You pay $0.07 per month for each $1,000 of coverage so you would pay $28 per month for $400,000 worth of insurance. Comparatively, the premium is very low. It is important to note that you will also pay a $1.00 monthly premium for Traumatic Injury Protection which pays if you are severely injured while on active duty (reserve component rules can be a little more complicated). Under current law, the premiums are reimbursed if you deploy in support of OEF or OND.
How Do I Sign Up for SGLI?
You are automatically enrolled in SGLI if you qualify for it. If you're on active duty, in a commissioning program, or meet reserve component requirements, you qualify. You will be signed-up for the full $400,000 if you are automatically enrolled. If you want to make changes to your SGLI coverage, you can do so here.
Who Should Get SGLI?
If anyone depends on you financially, you need life insurance. SGLI is a good choice to meet that need, but realize it my not be enough insurance depending on your financial obligations. If no one is financially dependent on you, then there is no need for life insurance, but you might want SGLI anyway. Certainly you want to have enough assets to pay for your final expenses (although the amount will be relatively small if you avail yourself of all Veteran's and Military benefits) and SGLI could be used for this purpose. You may also want to provide some funds for parents or others and SGLI can provide for that too. As a side note, the phrase Buying the Farm comes from SGLI proceeds being paid to parents to Buy the Farm.
How is SGLI Taxed?
SGLI proceeds are paid to your beneficiary(ies) income tax free. SGLI proceeds are a portion of your taxable estate, but for most of us our estate will be well below the Federal Estate Tax Threshold (approximately $11M). At the State level, there is an outside chance the proceeds could be subject to estate tax, but if your estate is below $1M it is pretty unlikely.
Who Gets the Proceeds?
You can choose the beneficiaries you desire. Your beneficiary(ies) can be any person, firm, corporation or legal entity, individually or as a trustee. You can name primary and secondary beneficiaries. If you don't designate beneficiaries, SGLI proceeds will be distributed by law, as follows.
- The surviving spouse of the member, if none,
- The child or children of the member, in equal shares, with the share of any deceased children to be distributed among the descendants of that child, if note,
- The parents in equal shares or all to the surviving parent, if none,
- A duly appointed executor or administrator of the insured's estate, if none,
- Other next of kin
It is important to understand that your beneficiary designation or the order above supersede the instructions in your will (unless you get to the fourth bullet above), so make sure your will and SGLI designations support each other.
Integrating SGLI into a Financial Plan
As mentioned, SGLI is an important part of your financial plan but it isn't the only military and veterans benefit to consider when planning your financial future. For instance, you are also covered by the Survivor's Benefit Plan (SBP), while on active duty and if you select it when you retire from the military. Working with a financial planner that understands your benefits can provide you with a plan that includes and accounts for your unique benefits and situation.
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