By Hank Coleman
Posted in Articles
Almost all members of the military are very familiar with the Servicemembers Group Life Insurance (SGLI) which is a fairly inexpensive group term life insurance offered by the federal government. But, there is a different life insurance policy that many agents try to sell members of the military, whole life insurance.
What’s the difference between the two and which one is better for members of the military? A life insurance comparison may help answer the question.
Whole life insurance is a cash-value policy that provides insurance protection for a person’s entire life. Because of this lifetime benefit, whole life insurance has considerably more expensive premiums than whole life insurance. There are tons of options that you can add to your whole life policy such as universal life, variable life, variable universal, and others that increase the cost of the insurance and the confusion over which policy is the right one.
Whole life policies also require the person purchasing the insurance to continue to make insurance payments for their entire life in most cases. With whole life insurance, consumers also pay a much higher commission to the insurance agent that sold the policy. This is a big reason why you see a lot of insurance agents push this type of insurance coverage.
Term life insurance is a type of insurance that provides temporary protection for a specific number of years. Many insurance companies sell term life insurance for periods such as twenty or thirty years. The Servicemembers Group Life Insurance is a term insurance plan that is effective until the date the member of the military ceases to be employed by the uniformed services instead of a specific date or years of coverage.
In most cases, the day that a member of the military leaves federal service is the day that their insurance coverage ends. Term life premiums are considerably cheaper and offer less frills than whole life, but many consumers find that their insurance coverage needs drop considerably in the later stages of their lives when term insurance tends to expire.
So, which type of insurance is better for a member of the military, whole life insurance or term life insurance? There are many variables that go into making the life insurance comparison, and everyone’s situation is different. Typically the best type of life insurance policy is term life insurance for a host of reasons.
A term policy is by far the cheapest insurance. It is easy for a $100,000 whole life insurance policy with an investment or guaranteed cash value option to cost more than $100 a month, but a level thirty-year term insurance for $500,000 of coverage can cost only $70 per month. Five times the coverage for 30 percent less cost per month. In many cases, financial planners recommend term insurance to their customers. If a consumer invested the difference between the price of term insurance and whole life, they would far exceed the amount of interest earned through a whole life policy with an investment option which tends to only earn 2 percent or so.
In addition to the cost, the fact that many people do not need insurance coverage later in life as their kids grow up and move out, the house is paid for, and college is over greatly adds to the draw of term life insurance.
When there is no one depending on a person’s income, the need to have insurance to protect that income stream is greatly reduced. As a person nears retirement age, that need disappears, often making term life insurance a great option for civilians and members of the military alike. There is no substitute for good life insurance comparison, and individuals should seek out the help of a qualified, certified financial planner who can help in making insurance decisions if you have questions about the coverage you need.
Hank Coleman is a Captain in the U.S. Army, freelance writer, and the founder of personal finance sites such as Military Money Might. His writing has been featured on The Motley Fool, Military.com, and many others. You can follow him on Twitter at @HankColeman.