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Little Known Benefits of VGLI

Things You May Not Know About VGLI

Most transitioning service members are aware that they can apply for Veterans’ Group Life Insurance (VGLI) after they separate or retire. But what many don’t know is, they can convert their VGLI policy to a commercial policy at any time.

Veterans Group Life Insurance

The Veterans’ Group Life Insurance (VGLI) policy allows transitioning military members to keep their current level of life insurance coverage as long as they continue to pay the premiums.

Generally speaking, you must have had the Servicemembers’ Group Life Insurance (SGLI) while on active duty and you’ve separated within the past 1 year and 120 days, roughly 16 months. There are, of course, other requirements for separating Reserve and National Guard members.

One of the greatest benefits of the VGLI policy is that Veterans who apply within 240 days of discharge or separation can get the VGLI without providing proof that they’re in good health. This is huge since many of us that leave the service have been broken in various ways.

VGLI vs. Commercial Whole Life Insurance

Consequently, Veterans can convert their VGLI policies into a commercial, or civilian, insurance policy at any time. The conversion will take place at standard premium rates and no proof of good health is required. If you’ve never applied to a civilian insurance provider, they are uber-picky about health issues.

Just to test this out, I recently applied for a $50,000 term-life insurance policy through Bestow. The company’s website says, “No medical exam ever”, which seemed promising. I answered the questions honestly, listing any conditions that are on my official VA record. Just a few minutes after submitting my application, I received notice that I had not been approved for term life insurance coverage through Bestow.

Most service members do not realize how easy it is to get life insurance while they serve. Nor do they understand how easy it is to snag a VGLI policy after separation. While I admit there are likely better policies out there, nothing can compare to the seamless coverage options that require no medical exam or proof of health condition. This is the most unknown aspect of having a VGLI policy and it can be a game changer. Here’s why.

Most whole life insurance policies accumulate a cash value that grows over the life of the policy. They pay death benefits at the designated amount, just like VGLI, but the VGLI does not have a cash value at all.

Another benefit of whole life insurance is that the premiums remain stable throughout the life of the policy, even if they start out a little higher than those of VGLI. However, another overlooked aspect of VGLI is that the premiums skyrocket as the veteran gets older.

VGLI Rates Increase Over Time

For example, when I retired from the Army, I paid $48 for $400,000 in term VGLI coverage. That’s not bad, but about double the SGLI rate. Now, my premiums are $64 per month for the same coverage. Still, that’s only a $20 jump and it was easily absorbed by budgeting.

However, when I turn 55, the premium rate will be $240. And at 65, the premium is an insane $588 each month. That’s wild, but it is typical of term life insurance policies.

Just for good measure, and because you’re probably interested, if I still have a VGLI policy when I’m 75 years old, the premium will be a whopping $1,712 per month. I’m not good at predicting the future, but I’m fairly certain that premium will be more than I can afford.

It’s All About Mindset

While the ever-increasing premiums of term-life insurance like VGLI are staggering, how you look at the coverage makes all the difference.

Younger policy holders tend to have increased financial obligations than do older ones.

For example, my policy is $400,000 because I have a bunch of kids and a mortgage that need support in the case of my untimely demise. As I get older, my kids will move out (hopefully) and my mortgage will eventually be paid off, which means that I could lower my VGLI coverage as my financial obligations are less than before. Lower coverage equals lower premiums.

Now, if I wanted to keep the $400,000 coverage even after paying off my house and kicking my adult kids out, then I might consider converting my VGLI policy into a commercial whole life policy. I’d do that to keep the most coverage I can with a steady premium that I could afford even after I stop working. But again, it’s all about your insurance plans.

Converting VGLI to Whole Life

If you choose to convert your VGLI policy, there are some things you should know. First, the policy you choose must be a permanent one, like a whole life policy. Second, you’re not allowed to convert your VGLI to another term life insurance policy. Nor are you allowed to switch it to a variable life or a universal life insurance policy.

Steps to VGLI Conversion

The first step in converting your VGLI into a commercial policy is to choose a new insurance company. There is a small list of participating companies for you to reference.

Once you’ve chosen a provider, the next step is to contact their sales office and let them know you’d like to convert a current VGLI policy to one of their permanent life insurance policies.

Finally, in order to complete the conversion, you will need to get a letter from the Office of Servicemembers’ Group Life Insurance (OSGLI) confirming your VGLI coverage. This letter is often called a VGLI Conversion Notice, and you’ll provide that letter to the insurance agent at the new company.

To obtain a VGLI Conversion Notice, you can contact OSGLI by emailing them at osgli.osgli@prudential.com (yes, write “osgli” twice). You can also call OSGLI at 800.419.1473, 8 a.m. to 5 p.m. from Monday thru Friday.

Disclosure & Conclusion

I am not a licensed insurance agent or financial professional. I am, however, a veteran who had SGLI on active duty, and who is a current VGLI policy holder since retirement.

Should you have questions regarding your current policy, please contact your policy holder or insurance agent. If you need help deciding which insurance coverage is right for you, I encourage you to seek counsel from a licensed financial professional.

With that out of the way, only you can decide whether or not to keep your VGLI coverage or to convert it to a whole life policy. I still hold my VGLI coverage because I’m young(ish) and my wife is serving on active duty. The premiums are affordable, and I like having the coverage to support her and our kids if anything happens to me.

However, I can tell you that I’m not going to have that policy when I’m 75 years old! Whenever I convert my VGLI policy, it will be after consulting with a financial advisor and my spouse. Always make the most informed decision that matches your financial goals.

 

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About the author

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Robert Haynes is a retired Army infantryman who has a squad of kids and is married to an active duty Soldier. He is a veteran of Operation Iraqi Freedom, who spent his last few years in the Army as a Drill Sergeant. He is now a full-time dad, freelance writer, and out-of-work comedian.