The Must-Know Basics of Life Insurance

One piece of a financial plan that is often overlooked is life insurance. Life insurance is a contract between you and an insurance company where members pay a smaller amount called a premium. In exchange, the insurance company will pay a much larger amount called a death benefit to the beneficiaries of the policy when the insured dies. The death benefit is tax free.

While every family’s specific insurance need is different, I often find that military families are underinsured. For example, a military household of four comprising of two parents and two children usually need more coverage than is provided through SGLI, Death Gratuity, and DIC. I advise everyone to carefully consider how your family would fair financially with the loss of a family member and subsequent loss of household income.

When considering life insurance, you should:

• Determine if you need life insurance.

• Estimate how much life insurance you need.

• Estimate how much you can afford to spend on insurance.

• Weigh in how much life insurance you may already have through your employer.

• Decide on the best type of insurance for you.

There are many types of insurance policies including:

Term Life – This will be the lowest cost where you are covered for a certain period of time, usually between 10-30 years. At the end of the term, you can renew the policy but at a much higher cost depending on your age and health.

Universal Life – These policies have a fixed premium for life that can be adjusted depending on need. These policies can be complex, cost more than term life, but are less expensive than whole life.

Whole Life – Intended to be owned for an entire lifetime. The premiums are fixed and are more expensive than universal life but have more features and benefits such as non-forfeiture options. The military, though, does offer some life insurance benefits. Don’t forget to take into account your military benefits when deciding on purchasing more life insurance. These military benefits include:

• SGLI or Service Members Group Life Insurance: Currently, this is set at $400,000 and will be increasing to $500,000 soon.

• FSGLI or Family Service Members Group Life Insurance: Currently, this is set at $100,000 for a service member’s dependent spouse and $10,000 for dependent children.

• Death Gratuity: This is a benefit of $100,000 payable upon death of a service member. You have this automatically.

• DIC or Dependency and Indemnity Compensation: This money is payable to a surviving spouse until death or remarried. Currently, the DIC benefit is $1,562.74 per month.

• One year of BAH payable to a surviving spouse

• DEA or Dependents Educational Assistance.