personal finance
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.
Brief Disability Insurance Update and Finance Friday Articles
Here’s a brief message update from Lawrence Keller, one of the experts of disability insurance for military physicians at Physician Financial Services:
Joel-
Hope all is well.
I wanted to let you know that MassMutual recently announced a 25% discount for Active Duty Military Physicians.
This discount is permanent and also applies to all increases made to one’s coverage in the future.
I’ve also been using a two policy approach for Military Physicians that will ultimately allow them to reach up to $20,000 month, regardless of their health, as their incomes rise. I have received very favorable feedback on this strategy, which even works for Military Residents/Fellows (who are typically limited to only $2,000 month to start).
If you have any questions or require additional information, feel free to call.
Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF
Phone: (516) 677-6211
Fax: (516) 269-7700
Toll- Free: (800) 481-6447
250 Crossways Park Drive, Woodbury, NY 11797
https://www.physicianfinancialservices.com/
Here are my favorites this week:
6 Tips For Those Who Have Enough
Different Strokes – An Analysis of Vanguard, Schwab, and Fidelity Target Date Funds
TAX PLANNING FOR PHYSICIANS: CONCEPTS YOU NEED TO KNOW
Here are the rest of the articles:
5 Reasons to Not Give Up On Social Security
9 Symptoms of an Unhealthy Relationship with Money
10 Simple Steps to Financial Success
An Investing Road Map for Pre-Retirees
A Retirement Readiness Checklist
Cash panickers: Coronavirus market volatility
Has the Market Changed at All Since the Bottom?
How to Get Rid of Stuff: The Survey Says…
How to Get Started in Telemedicine
How to make economic forecasts personal
Risk and Return in the Stock Market Are Not Evenly Distributed
Socially Responsible Investing: Is It Also More Profitable?
Start Your FIRE: A Modern Guide to Early Retirement
The Right Way to Use Debt in Medical School
Two Ways to Change your TSP Investments
What Happened to the Middle Class?
When All Your Baskets Break At Once: The Black Swan
Finance Friday Articles
Here are my favorites this week:
Earning Income in Multiple States
HOW REAL ESTATE AFFECTS YOUR TAXES
How Does the Fed “Prop Up” the Stock Market? (Interest Rates and Stock Prices)
Here are the rest of the articles:
6 Reasons Index Funds Remain King
8 Things Savvy Investors Understand
Asset Allocation (Part 2): The Risk / Growth Bucket
How to achieve investing success now and in the future
Lessons Driving an $800 Car Can Teach Your Kid
Risk Is Never as Simple as It Seems
Should You Use a Donor-Advised Fund?
Statistics Are Bloodless Things
The Flying V-Shaped Recoveries
Why Chasing Returns is a Sure Way to Lose: A Lesson From History
Finance Friday Articles
Terrance Odean is a professor of finance at UC Berkeley. His Vimeo videos are from an online personal finance course he taught titled “Making Smart Financial Decisions.” I’ve watched 15 or so of them, and they are about 10 minutes long, high quality, and educational. If you are looking for a financial education check them out here:
https://vimeo.com/terranceodean
Here are my favorite articles this week:
3 Financial Lessons From Covid-19
Academically Verified Investment Strategies that Failed
Massive Deficits and Historical Investment Implications
Here are the rest of the articles:
5 misconceptions I had about ETFs
12 Things to Know About the TSP L Funds
A Story of Residency Homeownership
How to Find College Scholarships to Help Your Child Graduate Debt-Free
How to Use an Emergency Fund Without the Stress
How to Use Real Estate to Pay for College
The Definitive Guide to the All Weather Portfolio
The Economics of Home Ownership
The Hardest Investing Questions to Answer
The Most Counterintuitive Recession Ever
The Pros and Cons of Miniscule Savings Account Yields
The Three Biggest Obstacles That Prevent You from Succeeding
Throwback Thursday Classic Post – Step 3 to Crush the Thrift Savings Plan – Asset Allocation
The Thrift Savings Plan (TSP) is the military’s retirement account. Learning how to maximize its utility should be high on your financial priority list. At MCCareer.org, I’m going to create a guide that will show you how to crush it with the TSP. We already showed you step 1 and step 2 in that guide. Here’s step 3…
The 3rd Step to Crush the TSP – Asset Allocation
You’ve probably heard that you shouldn’t put all of your eggs in one basket. That is what asset allocation is all about…making sure your eggs are in multiple baskets.
Asset allocation can be complex. There are entire books written about nothing but asset allocation, like The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk
What Assets are Available in the TSP?
There are only five assets available:
- G Fund – US government bonds specially issued to the TSP
- F Fund – US government, corporate, and mortgage-backed bonds
- C Fund – stocks of large and medium-sized US companies
- S Fund – stocks of small to medium-sized US companies (not included in the C Fund)
- I Fund – international stocks of more than 20 developed countries
What is not available? There are a few major asset classes unavailable. You cannot invest in real estate or international bonds. International emerging markets may be added to the I Fund is the TSP board can ever sort out the politics. If you want exposure to any of these asset classes right now, you’ll have to get them in your other investment accounts, like your IRA or taxable account.
How Do I Pick My Asset Allocation?
If in step 2 you decided to use L Funds, you don’t need to pick an asset allocation for your TSP. The L Fund takes care of it for you.
If you are not going to use L Funds, one way to decide on an asset allocation is to take this Vanguard survey. At the top of the page it will give you a suggested allocation, such as 80% stocks and 20% bonds.
Another way is to borrow from trusted investment experts. Here are a few opinions.
- 20-30s – bonds 10-25%, stocks 75-90%
- 40-50s – bonds 25-35%, stocks 65-75%
- 60s – bonds 35-55%, stocks 45-65%
- 70s – bonds 50-65%, stocks 35-50%
- 80s+ – bonds 60-80%, stocks 20-40%
- 20-30s – bonds 0%, stocks 100%
- 40s – bonds 0-10%, stocks 90-100%
- 50s – bonds 15-25%, stocks 75-85%
- 60s – bonds 20-30%, stocks 70-80%
- 70s – bonds 40-60%, stocks 40-60%
- 80s+ – bonds 50-70%, stocks 30-50%
Mr. Ellis is a little more aggressive than Mr. Malkiel because he recommends a higher allocation of stocks.
There are other ways to come up with a reasonable asset allocation, such as financial “rules of thumb.” The founder of Vanguard, John Bogle, is famous for creating the “age in bonds” rule of thumb. It says that whatever your age is, that is the percentage of your investments that should be in bonds. The rest should be in stocks.
For example, I’m 44 years old, so his rule would say I should have 44% in bonds and 56% in stocks.
This rule has been criticized as being too conservative, so some have changed it to 110 or 120 minus your age as the percentage you should have in stocks. For example, for me this would mean:
- 110 minus age 44 = 66% in stocks, the rest (34%) in bonds
- 120 minus age 44 = 76% in stocks, the rest (24%) in bonds (this is actually very close to my asset allocation as of 9 AUG 2020, 75% stocks and 25% bonds)
There are certainly other ways to come up with your asset allocation. You could ask a financial advisor. You could read other books. You could read other blog posts, like this one on the Bogleheads Wiki.
What About Other Assets Like Your Pension and Social Security?
This is a tough issue. Some would argue that pensions and social security are income streams and that they should not play into your asset allocation decision. This is what Vanguard argues. Others would argue that they are “bond-like” and should be factored into your asset allocation and counted as a large pile of bonds. Here are a few thoughts on the subject from blogs I follow and trust:
- The Oblivious Investor – How Pensions and Social Security Affect Asset Allocation
- Humble Dollar – A Price on Your Head
The Bottom Line – Asset Allocation
Somehow you have to figure out your desired asset allocation. The info above will hopefully facilitate that. Once you have a target asset allocation, now you have to apply it to the investments available in the TSP. Take the 4th Step…invest.
Joel Schofer's Career Planning Blog 