One of the most common things recently retired troops and families advice is you must secure any possible civilian life insurance well before you leave the military.
There are two main reasons for this. First, military out-processing and the Department of Veterans Affairs (VA) disability process may turn up medical surprises. These may make it expensive or impossible for you obtain civilian insurance.
Second, if you are retiring, you'll need to choose whether to purchase the Survivor Benefit Plan (SBP). You can't make a smart SBP decision if you don't know how much civilian life insurance will cost.
Life insurance is not necessary for everyone. You probably don't need life insurance if you are single, and aren't responsible for providing support for anyone. You may not need life insurance if you are married, but you have no kids and your spouse earns enough income to support himself. For the rest of us, including stay-at-home parents who don't work, life insurance is essential.
Most military members are covered by the incredibly affordable Servicemembers' Group Life Insurance (SGLI) plan. SGLI coverage stops when you leave the military. Veterans do have the option to convert their SGLI into Veterans' Group Life Insurance (VGLI,) but VGLI premiums quickly become quite expensive as you age into higher premium brackets.
Therefore, most veterans prefer to purchase their life insurance from a private company or organization. If you are going to do this, please be sure that you complete the entire process and have the policies in force well before you get anywhere near the separation or retirement process.
Insurability and Cost
Policies with the best rates typically require a medical screening process, during which the applicant discloses their medical history, and/or has a review of their medical records, and/or undergoes a medical evaluation. That allows the insurer to evaluate your risk and calculate your premium accordingly.
However, the premium is calculated only on the information available at the time the policy is issued (underwritten.) Information that becomes available after the policy is issued can not affect your premium. The likelihood that your health may change is already factored into the overall calculations, as everyone's health changes over time.
Leaving the military provides two different opportunities for medical examinations. Those who are separating before reaching retirement may, and probably should, have a separation health assessment or separation physical. Retiring service members are required to have a retirement physical examination. All members leaving the military may have an assessment from the Department of Veterans Affairs (VA) to determine their eligibility for disability benefits.
It is common for previously undetected issues to be found during these examinations. Some of these findings may mean that your civilian life insurance is more expensive. In the extreme, you may not be eligible for civilian coverage based upon the findings of your health assessments. This can be true even if the final determination is that the item that looked concerning is actually fine right now. (Crazy, huh?)
Securing your private insurance prior to all separation physical assessments gives you the best chance of obtaining the best insurance at the lowest rates available.
Survivor Benefit Plan
The Survivor Benefit Plan (SBP) is an annuity that provides income to survivors after the death of a military retiree. The decision about whether to purchase SBP coverage is made at the time of retirement, and is (mostly) permanent. The decision is very personal, and requires you to consider a wide variety of factors. The cost of alternatives is one of those factors.
The most popular alternative to SBP is life insurance. The only way to know, for sure, how much your life insurance will cost is to buy it. Because you want to know how much your life insurance is going to cost before making a decision about SBP, you want to purchase your life insurance before retirement.
Life insurance is probably an important part of your overall financial plan. SGLI coverage ends with military service, and the replacement process isn't always as smooth as you might expect. Planning ahead and securing life insurance well before separation will allow you to obtain the right policy at the best price and making wise decisions during this time of change.
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