Military Kids And Life Insurance: What's The Deal?

Military families face unique challenges when it comes to financial planning and insurance coverage. While the military provides Servicemembers' Group Life Insurance (SGLI) with a maximum coverage of $400,000, this may not be sufficient for those with dependents. Military professions also come with inherent risks, and some companies consider certain roles too dangerous to insure. Furthermore, SGLI does not cover children's health beyond a certain age or stage of education, and additional plans like TRICARE Young Adult (TYA) are needed to extend coverage for older dependents. Life insurance for children is a separate consideration, with options like Permanent 'Plus' offering low-cost coverage that can provide financial security for the future.

Servicemembers' Group Life Insurance (SGLI) coverage

Servicemembers' Group Life Insurance (SGLI) is a low-cost term coverage option for eligible service members. It is provided by the military and offers a maximum coverage of $400,000 for a monthly premium of $0.06 per $1,000 of coverage. This rate is the same regardless of age.

SGLI is a good option for service members as it is inexpensive, and the large number of young service members helps to keep premiums low for older members. It is also convertible to a Veteran's Group Life Insurance (VGLI) policy after leaving the service. However, some service members may find that the coverage is not sufficient for their needs, especially if they have a family or other dependents.

SGLI coverage includes an additional $1 per month for Traumatic Injury Protection (TSGLI), which provides benefits in the case of a traumatic injury. Service members can choose their level of coverage and their beneficiaries (the people who will receive the money from the policy in the event of their death). They can also make changes to their beneficiaries or coverage level online through the SGLI Online Enrollment System (SOES).

The monthly premium for SGLI coverage is automatically deducted from the base pay of service members. The premium rate is currently $0.06 per $1,000 of insurance coverage, with the additional $1 for TSGLI. For example, for $500,000 of coverage, the monthly premium would be $31 ($30 for SGLI and $1 for TSGLI).

Service members should consider their specific circumstances when deciding on the amount and type of insurance coverage they need. While SGLI is a good starting point, some may need additional coverage, especially if they have financial dependents.

Permanent 'Plus' coverage

Permanent Plus coverage is an interest-sensitive whole life insurance plan offered by Navy Mutual. It combines the protection of permanent life insurance with the investment growth of universal life-type insurance. This type of insurance is a great, low-cost way to set money aside for your child's future and ensure they have insurance as an adult.

Permanent Plus coverage offers a death benefit that can increase over time and provides tax-deferred cash value growth. Children between the ages of 6 months and 24 years can have up to $250,000 of coverage purchased on their life, sold in $10,000 increments. A $20,000 minimum is required, and $250,000 is the maximum amount of coverage allowed.

Premium rates for Permanent Plus coverage are calculated based on the insured's issue age, amount of coverage, payment duration, and tobacco use. The premiums are fixed and will not exceed the agreed-upon payment years. Payments can be made as a single payment or spread out over time, up to age 100. Generally, premiums over a shorter period tend to result in higher payments compared to those made over a longer duration.

Permanent Plus coverage is an excellent option for military families looking to secure their child's future and ensure they have the financial protection of life insurance as they become adults. It offers a low-cost way to build a fund for your child's future while also providing the security of a life insurance policy.

Tricare Young Adult (TYA) coverage

Military kids do not automatically have life insurance, but there are options for them to be insured. One option is Tricare Young Adult (TYA) coverage, which is a plan that qualified adult children can purchase after eligibility for regular Tricare coverage ends at age 21 (or 23 if enrolled in college). TYA is an option for unmarried, adult children who are not eligible to enroll in an employer-sponsored health plan and are not otherwise eligible for Tricare coverage. To qualify, the adult child must be between the ages of 21 and 26 and be a dependent of a Tricare-eligible uniformed service sponsor.

There are two types of TYA coverage: Prime and Select. The Prime option works the same as Tricare Prime, where the beneficiary has an assigned primary care manager (PCM) who provides most of their care. The PCM can be a military or in-network provider and will refer the beneficiary to specialists for care that they cannot provide. The Select option works just like Tricare Select, where the beneficiary can visit any Tricare-authorized provider. If the beneficiary sees an in-network provider, they will pay less out of pocket, and the provider will file claims for them. No referral is needed for any type of care with the Select option, but some services may require prior authorization. Both options have an annual deductible and co-payments, which are due at the time of service.

The cost of TYA coverage depends on the option chosen (Prime or Select), the sponsor's military status, and where the care is received. For example, the 2023 premium for the Prime option is $570 per month, while the premium for the Select option is $291 per month. To buy TYA coverage, individuals must make an initial 2-month premium payment and set up ongoing monthly premium payments through either a Recurring Credit Card/Debit Card (RCC) or an Electronic Funds Transfer (EFT).

It is important to note that TYA coverage is not life insurance, but rather a comprehensive medical and pharmacy benefits plan. While TYA provides valuable health coverage for eligible adult children of military service members, it does not provide financial protection in the event of their premature death. Therefore, those seeking to insure their military children may want to explore additional life insurance options.

War clauses in life insurance policies

Military families have access to Servicemembers' Group Life Insurance (SGLI), which provides a maximum of $400,000 of life insurance coverage. However, this may not be sufficient for everyone, especially those with families to support. When considering additional life insurance, it is essential to be aware of war clauses in life insurance policies.

A war exclusion clause in an insurance policy specifically excludes coverage for acts of war, such as invasions, insurrections, revolutions, military coups, and terrorism. This means that if the insured individual dies or is injured as a direct result of war or combat duty, the policy beneficiaries will not receive any benefits. War exclusion clauses are included in insurance policies because insurance companies cannot accurately calculate the premiums required to cover the high risks and potential costs associated with war. The potential financial burden of war-related claims could be astronomical, potentially driving the insurance company into bankruptcy.

For members of the military, a war exclusion clause is a significant consideration when choosing a life insurance policy. Since their line of work involves a high risk of war-related injuries or death, ensuring their life insurance policy covers war-related incidents is crucial. Fortunately, some insurance companies, such as USAA, do not include war clauses in their policies, providing peace of mind for military families.

When shopping for life insurance, it is essential to carefully review the policy details and ask questions to understand the coverage fully. Consulting with a financial advisor or insurance expert can also help military families make informed decisions about their life insurance options and ensure they choose a policy that meets their unique needs and provides the necessary protection for their loved ones.

Term vs. permanent life insurance

Military families have access to Servicemembers' Group Life Insurance (SGLI), which provides a maximum of $400,000 of life insurance. However, this may not be sufficient for everyone, and some may opt for additional coverage. When it comes to life insurance, there are two main types to choose from: term life insurance and permanent life insurance. Each has its own set of advantages and disadvantages, and understanding these can help you decide which option is best for your needs, budget, and long-term objectives.

Term Life Insurance

Term life insurance is a temporary form of coverage that typically lasts for a specific period, often between one and 30 years, or until a certain age. It is generally more affordable than permanent life insurance, especially when purchased at a younger age. Term life insurance policies have level premiums, meaning they remain constant throughout the policy's duration, though prices do increase with age. While term life insurance does not offer any cash value accumulation, some policies may include a return of premium (ROP) feature, where premiums paid are refunded at the end of the term if the insured person is still alive. Additionally, some term policies offer the option to convert to permanent life insurance after the term coverage expires.

Permanent Life Insurance

Permanent life insurance, on the other hand, provides lifelong coverage as long as premium payments are maintained. It tends to be more expensive than term life insurance, especially initially. Permanent life insurance carries a savings or investment component, known as its cash value, which grows tax-deferred and can be accessed or borrowed against during the policyholder's lifetime. However, withdrawing or borrowing from this cash value will reduce the amount of the policy's death benefit. Permanent life insurance comes in several varieties, including whole life, universal life, and variable life, each with its own unique features and flexibility.

Key Differences

The main differences between term and permanent life insurance lie in the duration of coverage, the presence or absence of a cash value component, and the structure of premiums. Term life insurance is ideal for those seeking short-term coverage or additional protection during specific life stages, while permanent life insurance is suitable for those in need of long-term financial protection. Term life insurance offers simplicity and lower initial costs, whereas permanent life insurance provides lifelong coverage, the ability to build cash value, and stable premiums.

Frequently asked questions