Life Insurance After Military Retirement: Keeping Your Family Protected

Military retirement is a major achievement, but it also marks a significant shift in your life insurance needs and options. Your SGLI coverage ends, your income structure changes, and new considerations around retirement pay and survivor benefits come into play.

The SGLI Cliff

When you retire from the military, your SGLI coverage ends 120 days after your retirement date. This is true whether you serve 20 years or 40 years. If you have not arranged replacement coverage before that 120-day window closes, your family loses their primary life insurance protection. The clock starts ticking on your separation date, and the 240-day VGLI conversion window is your safety net.

Retirement Pay and Survivor Benefits

Military retirees receive retirement pay, which can be a substantial income stream. However, retirement pay stops when you die unless you have elected the Survivor Benefit Plan (SBP). SBP provides your surviving spouse with 55 percent of your retirement pay in exchange for a premium of 6.5 percent of your selected base amount. While SBP is valuable, 55 percent of your retirement pay may not be enough to maintain your family's standard of living.

Life Insurance as an SBP Supplement

Many financial advisors recommend using life insurance alongside or instead of SBP. A strategy some retirees use involves declining SBP, purchasing a life insurance policy with the money saved on SBP premiums, and investing the remainder. The insurance death benefit can potentially provide more total value to your survivors than SBP's lifetime annuity, especially if you die relatively young in retirement. However, this strategy carries risk, as if you outlive your term policy or your investments underperform, your spouse loses the guaranteed income SBP would have provided.

Coverage Needs in Retirement

Retirement changes your coverage calculation. Your mortgage may be paid off or nearly so, children may be grown and independent, but new needs emerge. Consider income replacement for your spouse if your retirement pay stops, medical expense coverage until Medicare eligibility or to supplement TRICARE, long-term care costs that are not covered by TRICARE, and estate planning and wealth transfer goals.

Second Career Considerations

Many military retirees launch second careers. If your post-military income becomes a significant part of your household finances, you may need additional coverage to replace that income as well. Employer-provided group life insurance can help but is typically limited and not portable.

Recommended Retirement Insurance Strategy

Evaluate SBP carefully and consider locking in at least the minimum. Maintain or replace your SGLI with a policy sized to your retirement needs. Consider a permanent policy if you have estate planning objectives. Review and adjust coverage every few years as retirement needs evolve.

Military retirement is a time of transition and opportunity. Make sure your insurance strategy transitions with you, protecting the retirement you have earned and the family you have built.