personal finance
Learn About Insurance with My Junk Mail
There are certain things in life that deserve their poor reputation, and one of those things is junk mail. It is called junk mail for a reason, and that reason is because it is junk. Trash it. Shred it. Recycle it. Burn it. Learn from it.
What? Learn from it?
Yes, learn from it.
Let’s learn about insurance by looking at some of my junk mail…
My Energy Company
Two years ago I received this letter from Dominion Energy, my energy company:
They are requesting a response from me, so I figured it had to be important.
I was dismayed to learn that my status was “Not Covered.” Everyone wants to be covered.
I read on to learn that I was fully responsible if my sewer or septic line would need repair and that this repair would cost hundreds of dollars. And that’s when I recycled this letter.
Actually, I didn’t recycle it but saved it for this post, but that is when I normally would have recycled the letter. Why?
The Purpose of Insurance
The purpose of insurance is to pay an insurance company to assume some risk that you cannot individually assume. For example, if I died my family would need a little more money than we currently have. Not much, but a little. I cannot assume this risk myself, so I pay an insurance company to assume this risk for me by buying term life insurance.
In the case of this junk mail, it is describing a risk (my sewer line needs repairs) that I CAN shoulder myself because apparently it only costs “hundreds of dollars.”
They say it “may burden finances.” Not mine.
But they cover up to $5,000 of repairs…that’s a lot!
Not for me. So I’m not buying this insurance.
Central Lesson of This Blog Post – You only buy insurance for risks you cannot personally assume.
Example #2 – Pet Insurance
I love the Military Officers Association of America. It is great organization, and I’m a lifetime member. They are looking out for us in Congress, and they provide very thorough updates on what is going on with military and veterans benefits. I’d highly recommend you join if eligible. But they sent me this:
Hey, I’m all about pets. In fact, I have a golden retriever just like in this postcard. But I’m not buying pet insurance. Why?
Because of the…
Central Lesson of This Blog Post – You only buy insurance for risks you cannot personally assume.
Yes, you guessed it. I have pets (two dogs), but if something happens to them I can pay the bills. Therefore, I don’t need pet insurance.
Your Insurance Needs Will Change as You Age
At different times in your life you’ll have different insurance needs. When I was younger and had a lower net worth, there were risks I could not afford to assume. As a result, I had:
- A larger life insurance policy.
- Supplemental disability insurance on top of the military disability system.
- Lower deductibles on my insurance policies.
Now due to my higher net worth, I have:
- Umbrella liability insurance.
- The highest deductibles USAA will allow on all of my insurance policies.
- Much less life insurance.
- Cancelled my supplemental disability insurance.
Here you can read all about getting properly insured.
Regularly Reevaluate Your Insurance Needs
Once a year I call USAA and reevaluate my insurance needs. Because there have probably been changes to the risks I can afford to bear, and I remember the…
Central Lesson of This Blog Post – You only buy insurance for risks you cannot personally assume.
More Articles on the Social Security Tax Deferral
Here are some more articles about the Social Security tax deferral:
Order Gives Employees Social Security Withholding Tax Deferral, Not Forgiveness
Payroll Tax Deferral Takes Effect for Service Members
Troops, DoD Civilians Won’t Be Able to Opt Out of Payroll Tax Deferral Plan
Trump promises to erase troops’ 2021 deferred tax debt, but lawmakers say he can’t
Finance Friday Articles
Here are my favorite articles this week:
Common Tax Deductions That Will Save You Money
Venturing Abroad vs Happier at Home (two sides of an argument about investing in foreign stocks vs the US alone, written by the same author)
Here are the rest of the articles:
4 Benefits of Portfolio Rebalancing
9 Easy Steps to Building a Great Investing Strategy Using the Tax-Efficient Waterfall
Asset Allocation (Part 3): The Dream Bucket
Can the 60/40 Portfolio Still Work?
Comparison is the Thief of Joy
Eyeing the Exit – How to Get Out of Investments You No Longer Want
Preparing your finances for parenthood
Private Real Estate – What Fees Are Fair?
Should You Use a HELOC To Invest in More Real Estate?
The New Fed Mandate: Full Employment & Asset Bubbles?
The Worst Financial Gifts to Give Your Kids
Top 5 Factors that Make Financial Independence Easier to Achieve
Want a Peloton But Don’t Have $2K? Here’s How to Make a Cheaper Alternative
What Should I Put In My Roth IRA?
What Your Psychology Says About Your Relationship with Money
Military Times Article on Payroll Tax Deferral and a Cheat Sheet
Here’s a cheat sheet developed by Dr. Dustin Schuett* for the issue discussed in the article below:
Here’s a link to the Military Times article:
More than a million troops to get temporary pay hike with payroll tax deferral — but there’s a catch
*Note: The views expressed in this blog are those of the author and do not necessarily reflect the official policy or position of the Department of the Navy, Department of Defense or the United States Government.
Guest Post – Servicemember’s Group Life Insurance (SGLI) and an Important Note Regarding Individual Disability Insurance Eligibility
Understanding the value of maintaining life insurance to protect loved ones, the military makes group term life insurance available under the Servicemember’s Group Life Insurance (SGLI) program to the following service members:
- Active duty
- Ready Reservists or National Guard who are assigned to a unit and scheduled to perform at least 12 periods of inactive training per year
- Commissioned Members of the National Oceanic and Atmospheric Administration and the Public Health Service
- Cadets or Midshipman of the U.S. military academies
- Members of the Reserve Officer Training Corps engaged in authorized training and practice cruises
If you are on this list, at the end of this article provides a link on how to enroll. This coverage is not free as you must pay a monthly premium. This article will provide you the information you need to make an informed decision about life insurance.
SGLI is group term life insurance which means it will pay your beneficiary, a person or entity you choose, who will suffer a financial loss in the event of your death. If you can’t think of anyone, for example if you are single with no dependents, you can stop reading because you probably don’t need life insurance. However, if you are married with children, mortgage, etc., this protection is extremely important. Financial planning calculators indicate that an insured individual should maintain 7-10 times their annual income in life insurance until their youngest child is 25 years old.
SGLI provides up to $400,000 of coverage regardless of health and age for $24 per month. A similar private policy from the open market issued on a 30-year-old non-smoker will cost between $22-$32 per month, so the SGLI policy is competitively priced. This is because most active duty military are young, healthy and retire fairly young so the liability for the insurance company, Prudential, is mitigated.
Upon separation from service, SGLI can be converted to Veterans Group Life Insurance (VGLI) within one year and 120 days from separation. If done within 240 days of separation, no health qualification is required. Thereafter you must meet good health standards. Unlike SGLI, VGLI is not competitively priced and rates are determined by age and increase in five-year increments. A $400,000 VGLI policy is $40 per month between ages 30-34, $68 per month at age 40, $144 per month at age 50 and increases every five years to $1840 per month at age 75. Similar individual policies are approximately 60% of the cost of VGLI but you must qualify medically.
Taking into consideration the incomes of most military physicians and dentists, not only is SGLI inadequate in terms of need but it can lead to providing a false sense of security and result in the postponement of establishing an adequate personal term insurance program early in one’s military career before the development of health issues, nicotine use, avocations, or deployment. The only exclusions on individual life insurance policies are suicide during the first two years so war is covered but you cannot initiate coverage if you are stationed outside the country or have received orders to do so. Once again, the sooner you apply for coverage the wiser.
It is prudent to examine your individual life insurance options sooner rather than later. Please contact our office with any questions and don’t forget to ask about the disability insurance discount for new policies.
Important Note Regarding Eligibility for Individual Disability Insurance
Receiving orders for deployment outside the USA will prevent you from being able to apply for a non-cancelable and guaranteed renewable to age 65 policy until you return to the USA. This would mean paying a higher rate for the duration of your career. Since OCONUS PCS orders are given when you are at the end of training, it is prudent to explore establishing coverage prior to that time period. Avoid this potential pitfall and others by working with us and our extensive experience with military physicians and dentists today.
Andy G. Borgia CLU
D.K. Unger
888-934-4637
858-523-7518
SGLI Online Enrollment System (SOES) – Life Insurance https://www.benefits.va.gov/INSURANCE/SOES.asp
SOES is the Servicemembers’ Group Life Insurance (SGLI) On-Line Enrollment System. It replaces the paper-based SGLI/Family SGLI (FSGLI) enrollment, maintains elections and beneficiary information, and provides 24/7 self-service access to SGLI information. SGLI provides insurance coverage to eligible members of the active and reserve components.
Info on Social Security Payroll Tax Deferral for Active Duty
BLUF – If your monthly basic pay is less than $8,666.66 per month you are going to get extra money deposited in your accounts for the rest of the year, but they will take it back in early 2021.
Here’s the military relevant text from the DFAS page discussing this COVID related Presidential initiative:
In order to provide relief during the COVID-19 pandemic, a Presidential Memorandum was issued on August 8, 2020 and guidance followed by Internal Revenue Service on August 28, 2020, to temporarily defer Social Security (Old Age, Survivors, and Disability Insurance (OASDI) tax withholdings. This change is effective through the end of the 2020 calendar year.
Military Members – Effective for the September mid-month pay, DFAS will temporarily defer the withholding of your 6.2% Social Security tax if your monthly rate of basic pay is less than $8,666.66. If your monthly rate of basic pay is at or above this threshold, your social security tax withholding will not be affected by the temporary deferral. Military members can use their August or prior LES as a good reference for their typical Social Security tax amount. The Social Security tax is labeled as “FICA-SOC SECURITY” on the LES and is calculated as 6.2% of basic pay.
Military members are not eligible to opt-out of the deferral if their Social Security wages fall within the stated limits. The deferral will happen automatically.
Per IRS guidance, collection of the deferred taxes will be taken from your wages between January 1 and April 30, 2021 for both military members and civilian employees. Additional information on the collection process will be provided in the future.
If a military member or civilian employee separates or retires in 2020 before the Social Security tax can be collected in 2021, they are still responsible for the Social Security tax repayment. Additional information on the collection process will be provided in the future.
For questions on the temporary deferral of the 6.2% OASDI withholding:
- Visit the IRS page: https://www.irs.gov/newsroom/guidance-issued-to-implement-presidential-memorandum-deferring-certain-employee-social-security-tax-withholding.
Still have questions? See the FAQs for more information.
Look for Insurance Gaps
Here is an action from Jonathan Clements‘ blog Humble Dollar. Jonathan Clements was a longtime personal finance columnist for The Wall Street Journal, and he offers great advice at the best price you can get…free:
LOOK FOR INSURANCE GAPS. Many folks agonize over whether their policies are too large or small. A bigger danger: Not having coverage at all, because your life has changed but your insurance hasn’t kept up. Just had kids? It’s time for life insurance. Grown wealthy? Consider umbrella liability insurance. Started working for yourself? You may need disability coverage.
I’ve written a good bit about insurance. Here’s an article about getting properly insured.
How is insurance different for those in the military? It is a little more complicated. Many life insurance policies used to have war/military clauses. Some cater to the military, though, and aren’t as restrictive. Here’s how to buy life insurance in the military. Also, don’t forget about the other death benefits of being in the military.
It is also hard to get supplemental disability insurance (DI) if you need it. Most of us in the military are okay with the coverage we get from the military’s disability system, but if you are a top earner like a pilot, nuclear engineer, doctor, dentist, or someone else with a high salary and bonuses, you might want to check out this article on the White Coat Investor. While written for doctors, the company I wrote the article with also will sell insurance to other military high earners.
What insurance do I have right now? What insurance did I used to have? Here’s the current status:
- Disability insurance – I used to have supplemental DI, but I cancelled it because I no longer need it due to my adequate net worth and the military disability system.
- Medical insurance – TRICARE Prime, baby! Which is the most under-appreciated benefit of being in the military, by the way.
- Homeowner’s insurance – Got that through USAA.
- Renter’s insurance – I don’t rent, but when I did I had it through USAA.
- Auto insurance – I have our three vehicles insured through USAA.
- Umbrella liability insurance – I have enough through USAA to cover my net worth, which is the usual recommendation.
- Life insurance – I only have SGLI right now because I no longer need more than that. I’ve had as much as $3,000,000 total during my life, most of it through Navy Mutual Aid Association.
- Flood insurance – I’ve got flood insurance through USAA and FloodSmart.gov.
Finance Friday Articles
Here are my favorites this week:
How Should You Invest in Real Estate?
Recommendations From a Financial Advisor
Here are the rest of the articles:
5 Steps To Winning at Personal Finance
Envisioning a post-pandemic future
How Do Social Security Inflation Adjustments Work?
Learning From Our Biggest Mistakes in Real Estate Investing
Much Appreciated – A Discussion of Capital Gains Tax Rates
My Strategy For Dealing With FOMO
No, Robinhood Traders Aren’t Affecting the Stock Market
Stealth Wealth and Financial Independence: A Q&A with PoF
Term Life Insurance: What You Need to Know Before You Buy
The 2 Variables That Drive Stock Prices
The Case For a Post-Covid Spending Boom
The Do’s and Don’ts of Physician Contract Reviews
Three Limiting Beliefs Stopping you From Investing in Real Estate
Top 5 Reasons Your Doctor Has a Side Hustle
Using A Family Dynasty 529 Plan For Multigenerational College Planning
Military Death Benefits – Beyond SGLI
It is a little morbid to think about, but we’re all going to die. This means we all need to plan for it.
Everyone knows about life insurance, but what else does your family get if you die while in the military? Without knowing the answer to this question, it is impossible to execute a complete plan in the event of your death.
Here is a quick summary of the major benefits your family would receive if you died while in the military:
Servicemember’s Group Life Insurance (SGLI) – Most know this as the military life insurance policy. It pays up to $400,000, although you can reduce this amount if you want.
Death Gratuity – This is a tax free $100,000 payment that does to the beneficiary of your choice.
Casualty Assistance Officer (CAO) – Your next of kin gets assigned a CAO to help them apply for benefits.
Dependency and Indemnity Compensation (DIC) – This pays a monthly, tax free allowance of $1,283.11 to the spouse and an additional $317.87 per child under age 18. If you have at least one child, you get another $270 per month for two years. The rates are adjusted annually for inflation. In addition, depending on their income, some surviving parents could receive this.
Survivor Benefit Program (SBP) – The SBP pays a monthly benefit equal to 55% of the service member’s retirement pay if they were retired at 100% disability at the time of their death. It is reduced dollar-for-dollar by the amount of DIC the spouse receives.
Burial Benefits – You’d get some burial expenses and entitlements from the VA.
Fry Scholarship – The Marine Gunnery Sergeant John David Fry Scholarship provides Post-9/11 GI Bill benefits to the children and surviving spouses of Servicemembers who died in the line of duty while on active duty after September 10, 2001. Eligible beneficiaries attending school may receive up to 36 months of benefits at the 100% level.
Survivors’ and Dependents’ Educational Assistance (DEA) – The DEA Program offers education and training opportunities to eligible dependents of Veterans who are permanently and totally disabled due to a service-related condition or of Veterans who died while on active duty or as a result of a service-related condition.
Other Scholarships – Check the Fisher House Foundation’s scholarship search tool.
Commissary and Exchange Shopping Privileges – These continue.
VA Home Loans – Eligibility for these remains.
TRICARE – Your family can continue to use Tricare as usual for three years. After three years, coverage for children doesn’t change—they are covered as “active duty family members” until they age out of TRICARE or lose eligibility for other reasons. Coverage for surviving spouses changes to that of a retired family member.
As you can see, there are quite a lot of death benefits besides SGLI. Make sure take these into account when figuring out your estate plan.
How to Buy Life Insurance When You’re in the Military
Shopping for life insurance can be time consuming and difficult, but I’m going to make it easy for you. Read on to find out how much life insurance you need and figure out the best way to get it.
Do You Need Life Insurance?
The purpose of life insurance is simple. If you die, it protects those who are reliant on your income.
If you have anyone who is financially dependent on you, you need life insurance. If you don’t, you don’t need it. It’s that simple:
- Married with kids – You probably need it unless you have a sizable net worth.
- No kids but your spouse doesn’t work – You probably need it.
- No kids and your spouse works – If their income is enough for them to live on, you don’t need it. If it is not enough to live on, you need it.
- Single with no dependents – You don’t need it.
- Kids do not need life insurance.
This handles most scenarios. If you have some other situation, I’ll go back to the beginning…
If you die, would anyone suffer financially? If the answer is yes, you need life insurance. If the answer is no, you don’t.
What Type of Life Insurance Do You Need?
There are two types – term and permanent/cash-value. Only buy term. Never buy permanent/cash-value. No matter who tries to sell it to you or how convincing they are.
ONLY…BUY…TERM.
If you want to know why, read this article.
How Much Life Insurance Do You Need?
There are a plethora of online calculators set up to answer this question. The best one I’ve found is here. Use the calculator…that’s how much life insurance you need.
If you are averse to complicated calculators, a common rule is to purchase 7-10 times your annual income. Again, that is a rule of thumb that is not taking into account your individual life situation. If you are allergic to online calculators, though, using this rule of thumb will ensure that your family is not destitute if you die.
Where Should You Get Your Life Insurance?
You can shop around on different websites, like Term4Sale.com. But I wouldn’t do that if I was you.
Most companies that sell life insurance do not cater to the military. Their policies will have all sorts of restrictions that you and I just can’t be bothered with, like war clauses that would not pay out in the event of an act of war. (Note that Andy Borgia from DI4MDs.com contacted me after publication and says this is no longer the case. War is covered but there is a 2 year exclusion for suicide.) For this reason, I’d only get my insurance in one of four places:
- AAFMAA
- Navy Mutual Aid Association – You don’t have to be in the Navy to get insurance from them.
- Servicemembers Group Life Insurance (SGLI) – This is the life insurance you can sign up for via your military paycheck.
- USAA
There may be other military-focused insurers, and if you want to share them in the comments feel free, but these are my go-to sources.
What Combination of the Above Options Should I Get?
Getting SGLI isn’t necessarily the cheapest option. The above companies are well-versed in how you can most efficiently combine their products with SGLI to maximize the amount of life insurance you can get for your money.
Contact the three companies above. Spend some time listening to their opinions on how to best address your situation. Only buy term insurance. Then buy what seems best for you.
The Bottom Line
- Decide if you need life insurance.
- Decide how much you need.
- Buy term insurance only.
- Buy only from these sources – AAFMAA, Navy Mutual Aid Association, SGLI, or USAA.
Joel Schofer's Career Planning Blog 