Military Families Supplementing Government Life Insurance With Commercial Policies

As American servicemembers close in on 10 years of war in Iraq and Afghanistan, many military families are dealing with the financial risk of combat-related death through the use of commercial life insurance products – and they are more likely to rely on these products than the general population.

Recent survey findings from the First Command Financial Behaviors Index® reveal that 42 percent of middle-class military families (senior NCOs and commissioned officers in pay grades E-6 and above with household incomes of at least $50,000) own some form of permanent life insurance coverage and 49 percent own term life insurance products. Among members of the general population with similar incomes, 37 percent report ownership of a permanent life insurance product and 39 percent own term policies.

“The popularity of commercial life insurance in the military community is yet another example of the fiscal conservatism we see in this population, which tends to focus more on savings, debt-reduction and other frugal behaviors than the general public,” said Scott Spiker, CEO of First Command. “But more importantly, the prevalence of these products is a somber reminder that military families live with the risk of wartime death. They understand the threat, and they are taking meaningful actions to protect their long-term financial security.”

Commercial life insurance is typically purchased as a supplement to the low-cost group coverage available to military personnel as part of their total benefits package.  Each active duty service member is eligible for up to $400,000 in Servicemembers’ Group Life Insurance, commonly known as SGLI. Military personnel may add optional spousal coverage of up to $100,000 and dependent coverage of up to $10,000. The Index survey reveals that 73 percent of middle-class military families have life insurance coverage through the government.

After leaving the service military personnel may convert SGLI to Veterans’ Group Life Insurance (VGLI); however, premiums are higher and are based on the age of the insured. So many military families opt for supplemental commercial policies in order to increase their overall coverage now and provide longer-term protection (either in addition to or as a supplement for VGLI) for their post-military lives.

The most popular form of permanent life insurance coverage among the military is whole life insurance, which is owned by 31 percent of survey respondents. Running a distant second  universal life insurance, which is owned by 9 percent of respondents.

These products are growing in popularity among middle-class military families. The Index survey reveals that 28 percent of respondents who don’t own permanent life insurance say they are likely to consider purchasing it for themselves or someone in their household. In the general population, the likelihood is just 20 percent.

This strong interest in permanent life insurance may also reflect emerging concerns about a recent proposal to overhaul the military retirement system. A separate Index survey released earlier this month revealed that two thirds of middle-class military families say they feel nervous about the potential change, which would phase out the 20-year cliff vesting system that has defined military careers for generations. One in five respondents revealed that they are going to start looking into different retirement options.

“As details of this proposal continue to emerge, we expect to see many active-duty families reassess their post-military plans,” Spiker said. “It makes sense that this type of reassessment will likely go beyond obvious retirement considerations to address the full range of long-term financial strategies.”