Military life insurance: Is SGLI enough?

It's time to start thinking about how your family would use the proceeds from your Servicemembers' Group Life Insurance, or SGLI, should you die while serving on active duty.

That's an abrupt way to start the life insurance conversation, but it's an important question as you plan to meet your loved ones' needs. From paying off a mortgage to keeping food on the table, life insurance is a crucial element of a strong financial plan. While it can't alleviate grief, it can help ease the financial burden when a family member dies.

There are two main points I want to address up front.

1. SGLI is a great, low-cost benefit that should be a part of every service member's financial plan.
2. Depending on your family circumstance and goals, you may need additional life insurance coverage to better protect your loved ones.

Considering these points, USAA defines adequate life insurance as coverage that pays off 100% of debts and replaces five years of income.

What is SGLI?

Simply put, SGLI is group term life insurance offered for military service members. Its objective is to give you and your family a respectable amount of protection while on active duty. You can learn more about the specifics through the U.S. Department of Veterans Affairs.

Let's look at how SGLI and private life insurance can help provide peace of mind for your family's future.

Pay off debt.

When people think about life insurance, paying off debt is usually their main priority. After all, with no debt, savings can last much longer.

A family's biggest debt is usually their mortgage, with the U.S. average balance at approximately $235,000.

In addition to mortgages, some people also carry:

• Almost $6,000 in credit card debt.
• Car loans greater than $22,000.
• Personal loans north of $18,000.

Let's say your family receives $500,000 of SGLI. If you subtract these average consumer debt balances, you're left with $219,000. Considering adequate coverage amounts, you must ask yourself if this remainder covers five years of income.

Replace your income.

If the person who dies is the sole wage earner, replacement income can help bridge the gap until the remaining spouse can find a job. It also gives them time to grieve, so they don't have the added stress of finding a job immediately.

When I was serving active duty, I knew that if I died, it would take some time before my wife would earn as much as I was earning at that time.

There were several reasons for that. She had been out of the workforce for almost 10 years raising our children. And even before we had children, she didn't have many opportunities for continual employment because as a military spouse, she moved every two to three years. It would take some time for her to re-climb the corporate ladder to earn the same salary I was making mid-career.

That's not to say that the loss of one income doesn't equally affect dual-income households, especially if they're spending all they earn. No matter how much you make, if you'll be financially burdened by the loss of income, strongly consider how life insurance can be used to ease your burden.

To help illustrate the cost of replacing income, let's look at two separate examples. One of an E-5 and the other an O-3, both with 10 years of service out of San Antonio, Texas. Presume each files taxes married-jointly in a family of three.

Adding up Basic Pay, BAS and BAH, our E-5 has an approximate income of $76,300 annually, while our O-3 is at $117,100.

To replace five years of income, the E-5 would need $381,500 of SGLI and an O-3 would need $585,500.

Considering the previous example, you're only left with $219,000 after paying off your debts. So regardless of the level you're at in your career, you'd likely fall short of being adequately covered.

In my case, I didn't want my family to just get by; I wanted them to be able to fully accomplish our family's financial goals. That's where extra life insurance — above adequate coverage — came into play.

Pay for child care.

When life insurance proceeds are used to pay for daily living expenses, they'll eventually run out. If you need child care to return to work, it can be a significant line item in your budget.

For example, child care costs continue to rise. With many families planning to spend more than $9,600 per child each year. If you can cover child care with your life insurance payout, you can help the new income go further.

Secure health insurance.

Health insurance will be important during the transition, especially because your spouse may not go back to work immediately. Your status at the time of death will determine if TRICARE coverage continues — and for how long.

Active-duty family members will continue to be covered for the first three years after the active-duty sponsor dies.

If you're not covered by TRICARE and you don't have health insurance through an employer, subsidized coverage may be available through healthcare.gov.

Fund education costs or college savings.

Many people plan to use life insurance proceeds to pay for their children's education costs. Qualified dependents may be able to use unused GI Bill awards for higher education, which could reduce the need for life insurance to cover this goal.

Cover other individual goals.

Every person and family have a unique set of goals and priorities. In addition to funding the basics like debt repayment and income replacement, some people want to use life insurance to leave a legacy, to pay off a small business loan, to hire someone to run their business, or to provide for the care of a special needs individual.

Is SGLI enough?

Because every situation is different, every family needs to have the life insurance conversation. To determine whether SGLI is enough, you can start with building a good understanding of your family finances and goals. From there, speak to a professional or use an online life insurance calculator to help determine if SGLI is enough. If it's not, consider supplementing SGLI with a private life insurance policy to make sure your desired goals are met.