Va Life Insurance Benefits: Taxable Or Not?

Veterans and their families are eligible for a range of insurance programs through the VA. These include Servicemembers' Group Life Insurance (SGLI), Veterans' Group Life Insurance (VGLI), National Service Life Insurance (NSLI), and Service-Disabled Veterans Insurance (S-DVI). When a veteran dies, their survivors should contact the VA Insurance Center to determine if the veteran participated in any of these insurance programs and, if so, how to claim the benefits. Importantly, while life insurance proceeds are generally not taxable, any interest received on VA life insurance policies is taxable and must be reported.

VA life insurance benefits are generally tax-free

For example, Servicemembers' Group Life Insurance (SGLI) provides coverage for retirees for 120 days following retirement with no additional premium during this period. If a retiree is considered totally disabled on the date of retirement, they can retain SGLI coverage for up to a year or until the disability is no longer total. The payment of proceeds to beneficiaries under SGLI is exempt from taxation.

Another program, Veterans' Group Life Insurance (VGLI), allows retirees to convert their SGLI coverage within 120 days of retirement or within a year if they are totally disabled. VGLI is a five-year renewable term policy, issued for a maximum of $250,000 in $10,000 increments, but not exceeding the amount of SGLI coverage the retiree had upon retirement. Like SGLI, VGLI does not pay dividends, and proceeds are not taxed.

National Service Life Insurance (NSLI) is another program that pays dividends to policyholders. These dividends can be used to buy paid-up additional insurance, which provides extra protection for beneficiaries, cash and loan values, and the option to stop paying premiums. Policyholders can also deposit their dividends into a VA interest-earning account, where the interest accrued is not taxable.

Overall, while there may be specific conditions or variations depending on the program, VA life insurance benefits are generally designed to be tax-free for beneficiaries.

Interest from VA life insurance policies is taxable

Interest accrued on VA life insurance policies is taxable. While the proceeds of life insurance policies are generally not taxable, the interest earned on these proceeds is taxable. This means that if you have a VA life insurance policy that pays out dividends, you will need to pay tax on any interest accrued.

For example, let's say you have a National Service Life Insurance or Veterans' Reopened Insurance policy, which pays dividends. You have the option to deposit your dividend into a VA interest-earning account. The interest you earn in this account is taxable income. On the other hand, if you choose to receive your dividend in cash, it is not considered taxable income.

It is important to note that the taxability of interest from VA life insurance policies may vary depending on the specific policy and your individual circumstances. Therefore, it is always a good idea to consult with a tax professional or the VA directly to understand your specific tax obligations.

Additionally, it is worth mentioning that while interest may be taxable, there are other benefits provided by VA life insurance policies that are not taxable. For instance, disability benefits received from the VA, such as disability compensation, pension payments, and grants for home modifications, are typically not subject to taxation. Similarly, education benefit payments received through the VA for education and training are also generally tax-free.

VA Form SGLV 8283 is required to apply for Servicemembers' Group Life Insurance

VA Form SGLV 8283, Claim for Death Benefits, is required to apply for Servicemembers Group Life Insurance (SGLI) or Veterans' Group Life Insurance (VGLI) after the death of a service member or veteran. This form can be obtained online and should be submitted to the Office of Servicemembers' Group Life Insurance (OSGLI) by mail or fax, along with a copy of the death certificate.

SGLI is a low-cost term life insurance coverage offered to eligible service members. It provides benefits such as coverage of up to $500,000, 120 days of free coverage after leaving the military, and an extension of free coverage for up to 2 years if the service member is totally disabled upon leaving the military. Part-time coverage is also available for Reserve members who do not qualify for full-time coverage.

VGLI, on the other hand, is a program that allows retirees to convert their SGLI coverage within 120 days of retirement or within one year if they are totally disabled retirees. The coverage amount is issued up to a maximum of $250,000 in $10,000 increments.

To apply for SGLI, eligible service members are automatically signed up through their service branch, and they can manage their coverage and beneficiary information through the SGLI Online Enrollment System (SOES). For VGLI, the application form is SGLV 8714, and it can be downloaded from the official website.

Veterans' Group Life Insurance is a five-year renewable term policy

In the United States, Veterans' Group Life Insurance (VGLI) is a five-year renewable term policy. It is a life insurance program that allows service members to convert their Servicemembers' Group Life Insurance (SGLI) coverage to term life insurance that is renewable for five years. VGLI is overseen by the Department of Veterans Affairs and administered by the Office of Servicemembers' Group Life Insurance.

VGLI coverage is issued in multiples of $10,000 up to a maximum of $500,000. However, a service member's VGLI coverage cannot exceed the amount of SGLI they had when they left the service. To be eligible for VGLI, individuals must meet at least one of the following requirements:

• They had part-time Servicemembers' Group Life Insurance (SGLI) as a member of the National Guard or Reserve and suffered an injury or disability while on duty that disqualified them for standard premium insurance rates.
• They had SGLI while serving in the military and are within 1 year and 120 days of being released from active duty of 31 or more days.
• They are within 1 year and 120 days of retiring or being released from the Ready Reserve or National Guard.
• They are within 1 year and 120 days of assignment to the Individual Ready Reserve (IRR) or the Inactive National Guard (ING).
• They are within 1 year and 120 days of being placed on the Temporary Disability Retirement List (TDRL).

It is important to note that VGLI premium rates are based on age and the desired amount of insurance coverage. Additionally, VGLI coverage can be converted into a commercial (civilian) policy at any time, with the option to convert at standard premium rates without providing proof of good health.

National Service Life Insurance has not enrolled new retirees since 1951

The National Service Life Insurance (NSLI) program was created on October 8, 1940, to manage the insurance needs of World War II service personnel. Over 22 million NSLI policies were issued until the program was closed to new issues on April 25, 1951. This means that no new retirees have been enrolled in the program since 1951.

NSLI policies are issued under a variety of permanent plans and as renewable term insurance. Today, there are just over 67,880 policies still in force, with annual dividends paid on these policies. The maximum face amount of a policy is $10,000, but this limit does not include paid-up additional insurance, which can be purchased with the annual dividends. Certain disability benefits are available under these policies for policyholders who become totally disabled before their 65th birthday.

NSLI policyholders have several options for receiving or using their dividends:

• Pay the annual policy premium: If the dividend is less than the annual premium, the policyholder will receive a bill for the remaining amount.
• Buy paid-up additional insurance: Policyholders can use their dividends to purchase additional insurance on top of their basic coverage. This additional insurance earns dividends and provides more protection for beneficiaries, as well as cash and loan values.
• Deposit the dividend into a VA interest-earning account: The interest earned on this account is not taxable, and policyholders can withdraw money at any time.
• Repay a loan or lien: Dividends can be used to repay any loan or lien against the policy.
• Pay premiums in advance: Policyholders can use their dividends to pay premiums as far in advance as possible.
• Receive dividends in cash: Policyholders can choose to receive their dividend directly in their bank account or via a U.S. Treasury check.

It is important to note that NSLI is different from other VA life insurance programs such as Servicemembers' Group Life Insurance (SGLI) and Veterans' Group Life Insurance (VGLI), which do not pay dividends.

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