For eligible service members, the SGLI program provides low-cost term coverage that can be critical for keeping their family members secure back home while serving as active duty members in the military or the National Guard. Servicemembers’ Group Life Insurance (SGLI) expires shortly after your military retirement, and it does not accumulate any cash value, even if you’ve been paying for it for many years.
However, there are still important steps you can take to make sure you get the most out of your SGLI benefits leading up to and beyond your military retirement, even though you will not be able to retain SGLI coverage indefinitely.
Does Servicemembers' Group Life Insurance (SGLI) Have Cash Value?
The primary benefit of a life insurance policy is the death benefit, the sum of money paid out to the surviving beneficiaries of the insured person following their death. The death benefit corresponding to SGLI maximum coverage is $500,000.
Additionally, some life insurance policies have living benefits related to the cash value of the policy. However, the only life insurance policies that accumulate cash value are permanent life insurance policies. Servicemembers’ Group Life Insurance (SGLI) is considered a form of term life insurance, not permanent life insurance, so it has no cash value component.
Can You Take Out Money From Your SGLI?
Because your SGLI has no cash value, you cannot take out money from your SGLI. If you have $500,000 in SGLI coverage, that amount refers only to the death benefit that would be paid out if you were to die while the policy was still active. The policy itself has no enduring value. You cannot cash out your SGLI, sell it, or withdraw cash from it because it has no cash value.
Can You Borrow Against Your SGLI Coverage for Loans?
Just as you cannot take out money from your SGLI, you cannot borrow against SGLI for loans. The reason is the same: SGLI coverage comes with no cash value, so there is nothing to borrow against or withdraw.
Managing SGLI Coverage After Active Duty
Since your SGLI coverage has no cash value attached to it, there is no part of it that you can retain once it expires. This is why it’s so important to understand what happens to your SGLI when the coverage ends.
Most former service members separating from the military will see their SGLI coverage expire 120 days after their date of separation. However, some may qualify for an SGLI disability extension, which can make partially or totally disabled veterans eligible for SGLI coverage for up to two years following their separation date.
Though you can’t keep your SGLI coverage, the Department of Veterans Affairs (VA) does ensure two pathways for converting your SGLI to a new life insurance policy: conversion from SGLI to VGLI or conversion from SGLI to private life insurance. Both of these processes are considered “military conversions,” but there are important differences between these two options.
Converting SGLI to VGLI for Maximum Coverage Amount
Veterans Group Life Insurance (VGLI) is a life insurance policy offered by the VA that makes it easy to ensure retiring service members do not lose life insurance coverage altogether once their SGLI coverage ends. Unlike SGLI, veterans are not automatically enrolled in VGLI, so it is something that must be applied for. However, as long as you do so within the proper time window, and you had SGLI while serving, you will be guaranteed approval for VGLI.
VGLI works as a new life insurance policy. It is not a continuation of your SGLI coverage, but it does allow you to keep up to the same amount of your full-time SGLI coverage that you had while serving (the SGLI maximum coverage amount is currently set at $500,000). If you had less than this current maximum coverage amount of $500,000 as a service member, you can purchase additional coverage under VGLI in increments of $25,000 each year.
Veterans have 240 days following their date of military separation to convert from SGLI coverage to VGLI coverage without showing proof of good health, or up to 1 year and 120 days from the date of military separation with proof of good health.
Though the cost will not be as low as the SGLI premium rates you might be used to, Veterans’ Group Life Insurance (VGLI) can be a useful way to secure relatively affordable life insurance following retirement from the military.
However, it is important to understand that the monthly premium cost of VGLI coverage is tied to the insured’s age. VGLI, therefore, can be a good temporary life insurance option for young veterans, as it can start out with affordable rates, but it is not a great option for those who want lifelong coverage at a rate that will not increase over time.
Does VGLI Have Cash Value?
SGLI and VGLI are similar in that they are both considered term life insurance, so VGLI does not have cash value. If you decide to get VGLI coverage, you will not be able to sell your VGLI, withdraw cash from it, or borrow against it for loans.
Converting to Private Life Insurance
A private life insurance policy is one that you would purchase through a private company like American Fidelity Life Insurance Company, as opposed to VGLI, which is obtained directly through the VA.
Veterans have only 120 days from their date of military separation to convert their SGLI to private life insurance without showing proof of good health, so it is important to act fast. If you miss this window and your SGLI coverage expires, you can still apply for a private life insurance policy, but you may not be approved for a policy if you are deemed to pose a high risk to the insurance company due to health issues or risky habits and activities.
Policies That Are Eligible for SGLI Conversion
It is also important to note that, even within that 120-day period, your SGLI conversion privileges only apply to some types of private life insurance policies. SGLI can only be converted to a permanent life insurance policy, so you cannot convert your SGLI to a term life insurance policy.
There are also certain types of permanent life insurance policies that are excluded from SGLI conversions, such as universal life insurance. Most commonly, the private life insurance policies that are eligible for SGLI conversion are whole life policies.
Whether you convert to VGLI or private life insurance, it is important to remember to update your beneficiary information throughout the duration of the new policy as your family undergoes changes.
Life Insurance Policies with Cash Value
Military conversion is an invaluable tool for service members who are about to leave the military and know they have serious health concerns either in the present or in their recent medical history. Converting your SGLI guarantees that you will be approved for the policy you are converting to, whether that’s VGLI or whole life insurance through a private company.
However, given the above restrictions, if you believe you are in good health, a conversion of your SGLI might not be your best option. Instead, you can simply apply for whichever kind of life insurance policy you’re interested in from a private company like American Fidelity Life Insurance Company. You won’t need to produce the military conversion documents needed for the conversion process, and you can simply let your SGLI coverage expire after your new private policy begins.
Term vs Permanent
As stated earlier, term and permanent life insurance are two distinct categories of life insurance policies. Permanent life insurance policies, including whole life and universal life, do have cash value, while term life insurance policies do not have cash value.
Whole Life vs Universal Life
Whole life and universal life are two types of life insurance policies that are similar in many ways. Both types of policies guarantee lifelong coverage at a monthly rate that will not automatically increase with age, and both have a cash value component that grows over time with interest on a tax-deferred basis. A portion of each monthly premium payment contributes to the policy’s cash value, and additional contributions to the cash value can be made according to the rules of the specific policy.
Whole life insurance policies tend to benefit those who want a simple life insurance with as little oversight needed as possible, whereas universal life insurance policies come with the added benefit of extra flexibility, allowing policyholders to make adjustments to the amounts of their premium payments and death benefit coverage amounts at various points throughout the policy.
Cash Value Life Insurance Benefits
The cash value component of a life insurance policy is referred to as a living benefit because there are many things that the cash value can be used for while the insured person is still alive, as opposed to the death benefit, which is only paid out when the insured person dies.
Withdrawals and Surrender
You can take money out from the cash portion of your permanent life insurance policy, and this is referred to as either a withdrawal or a partial surrender. Different companies and different policies have different rules for when these withdrawals can take place, how much can be withdrawn, and if there are any penalties incurred from withdrawals.
If you decide you no longer need the death benefit coverage offered by your life insurance policy, or you simply can no longer afford to pay for it, you can choose to initiate a full surrender. A full surrender would terminate your life insurance policy, but you would receive a lump sum payout of the policy’s remaining cash value.
Loans
If you wish to take advantage of your policy’s cash value but do not want to deplete the cash value or reduce the death benefit, you can borrow against the cash value to take out a loan rather than making a withdrawal. The loan amount would have to be paid back with interest according to the life insurance company’s interest rate and other stipulations.
Pay for Premiums
The cash value of a life insurance policy can also be used to pay for the policy’s premium. Once the policy has been active for a long enough period of time and has accumulated enough cash value, it is possible to retain your life insurance coverage without having to make premium payments, as long as there is enough cash value to cover the cost of the premiums.
Interest Rates
The interest rates on cash value accumulation and loans vary by company and policy, so it is important to speak to an agent for specific information. However, one of the benefits of life insurance policies with cash value is that they tend to have favorable interest rates that allow the cash to grow at a solid rate and to be borrowed against for loans that can be paid back at reasonably low interest rates.
Secure Your Financial Future with American Fidelity Life Insurance
American Fidelity Life Insurance Company offers whole life and universal life insurance policy options, both of which have a cash value. To learn more about these policies and to get a personalized quote, or to learn more about SGLI coverage conversion, submit a request to talk to an agent today.
