Life insurance is a tough topic to discuss and one that is often is considered too late. When my active duty spouse purchased an additional policy above the SGLI, I honestly never considered purchasing a policy for myself. When a dear friend lost her sister just days after delivering a beautiful baby girl, the realization of what my death would mean to my spouse and two young girls weighed heavily on my heart.
I started to think about what kind of policy I should consider and spent some time talking with fellow military spouses about their choices and then ran those suggestions by USAA’s Sean Scaturro CFP®, Director of Life and Health Insurance Advice.
Here are some decision-making points from military spouses regarding their family’s life insurance choices as well as some questions they had regarding policies:
Stephanie: My husband and I saw a financial planner shortly after we had our first child. The amount of insurance we have is related to a couple of things: Funeral expenses Loss of income (and even if 1 parent doesn't work, the cost to hire someone to fulfill those at home duties like childcare, housework, yard work, etc.) Whether the surviving parent would like to take time off Outstanding debts (mortgage, car, student loans)
Sean: Sounds like you received some great financial advice! Life insurance should cover, at minimum, the total amount of debt that you have and it should replace a loved one’s lost income for at least 5 years. Final expenses and education costs for children are great things to plan for as well. Stephanie is spot on about making certain that you have insurance on the whole family, not just a working spouse. If something were to happen to my wife, I wouldn’t be able to work the same amount or I’d have to hire someone to help me with my three kiddos. At the heart of it, life insurance gives families the cash they need to help stay in their homes, maintain their standard of living, and gives them the needed time to celebrate the life of those they’ve lost.
Jessica: We had someone come to do a health assessment, why is that necessary? What's the point?
Sean: Life Insurance looks at your health to determine if you can get coverage and to figure out what the best rate available is for you. If you are in good health, you should be rewarded for it in the costs you pay for your insurance policy. But health changes and often for the worse; it is important to take advantage and getting your coverage in place now while you have good health and are a younger age (which are two major factors that determine your policy’s price) so that you can get the best price for your needs.
Kristen: We looked at the cost of child care + expenses related to offsetting the cost of living off post if my retired ILs came to live with my husband to help + financial cushion for the transition if he decided to leave the military before 20 for more stability. More than anything, we wanted to give my husband some room to make what he felt was the best decision for him & our son. We wanted him to have choices. Our decision making was also based on if something happened to both of us, what resources would our family need to support them.
Sean: I agree with your thoughts; the last thing that families should have worry about are decisions that they are forced to make versus decisions that they can choose to make. I’ve heard too many stories where no life insurance was in place and now the house is up for sale and survivors are moving in with other family members or vice versa. Insurance gives peace of mind that your loved ones will be in the driver’s seat to make the best decisions that they can make.
You bring up an excellent question about what happens if both parents should pass – this is where taking steps the plan for your estate can make a huge positive difference. Everyone has an estate, not just rich people, therefore everyone needs an estate plan. With life insurance, naming minor children as beneficiaries to your policy isn’t the best idea. To make sure that there are resources available to the people you have chosen as guardians for your kiddos, some basic Trust work may be needed. A trust is a legal document that is used to instruct others how to use your money for the benefit of your little ones; it can protect your children from themselves so that they don’t get a lump sum of cash and buy some fancy sports car and it can also provide you comfort knowing that your wishes for your kiddos, like college education, can be met if you were to pass away. I recommend doing some research on trusts and estate planning in your state and contacting a legal professional to help you establish your estate plans.
Bryanne: I have three and got them young. I lost my mom when I was 15, so that sat with me as a mom. The younger and healthier you are, the cheaper your policies. I have 2 universal policies, one for 150K and one for 50K, and term policy for 300K. Plus I'm covered under hubbies spouse SGLI, so if I pass he will have enough to pay off our debt, buy a home, help the kids with college and take some time to himself. It's not a windfall that will keep him from working, but it will help. Even if spouses don't have jobs, I highly recommend getting life insurance. Skip term though. I wish I'd done all universal or whole life policies while I was young and lean.
Sean: First I want to congratulate you on being well protected and it’s great to hear first-hand, your belief in the value that life insurance provides. You raise some great points and I want to touch on the differences between term coverage and permanent coverage, like the universal life policies you mentioned.
Term insurance is ideal for providing cash to offset big cost things like paying off a mortgage, or replacing income for multiple years, and even college education considering how expensive tuition is getting these days. A term policy will typically have a fixed cost that you pay and a specific length of time that the coverage will be in force. Some policies can be renewed at the end of the term but in most cases, you should think about term coverage as a temporary coverage needed during those years when your financial risks are their highest. Long story short, you can buy a lot more insurance with your money in a term policy; but they don’t last forever.
Now let’s fast forward. The mortgage is paid off; your kids are raising families of their own and you are on retirement’s doorstep. Your needs and wants are very different than they were 25 years ago. Permanent life insurance is great for helping to protect retirement assets from being used up too early or being used to create a legacy or inheritance for your loved ones. Permanent life insurance is designed to last your entire life, and because of this, it costs more to buy it.
Another big difference is that permanent life insurance, like whole life or universal life, will accumulate cash value. This money can be used during your lifetime and it can provide some tax advantages too when used correctly. It’s a good idea to work with a financial planner or life insurance expert when exploring some of the more complex uses for your permanent life insurance policy.
It is not easy to talk about death or imagine the worst-case scenarios but it is so important to have these discussions before a tragedy strikes.
Please feel free to ask Sean questions in the comments. You can find other member’s life insurance questions and answers from one of USAA’s Certified Financial Planners here.
IM2_IRA0100_Not_Tax_Advice_Preceding The preceding discussion is not tax, legal or estate planning advice. Consult with your tax, legal or estate planning professional regarding your specific situation.
FPS2_FPC0800_CFP_Symbols_Allowed Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® & CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements.
Life insurance &annuities provided by USAA Life Insurance Company, San Antonio, TX, and in New York by USAA Life Insurance Company of New York, Highland Falls, NY. All insurance products are subject to state availability, issue limitations, &contractual terms and conditions. Each company has sole financial responsibility for its own products.
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