Hey, MilSpouses, it’s Life Insurance Awareness Month!

Okay, so maybe that doesn’t make you want to break out the cake and ice cream, but life insurance is an important part of your financial plan. It can help take care of your family, giving them financial security if something happens to you or your service member.

Who needs life insurance?

Simply put, if someone depends on you financially, then you’re a candidate for life insurance. A common mistake among spouses raising children and not working outside the home is thinking they don’t need coverage. If the spouse-at-home passes away, the cost of child care for the surviving spouse would be one reason to have life insurance. Other situations include those who may want to repay debt, like a mortgage, or fund future goals, like education for dependents.

How life insurance works

Life insurance provides a death benefit (payout) to the named beneficiary when an insured person dies. Your premiums (what you pay for your policy) are based on the amount of coverage along with risk factors such as age and health. There are two main types of life insurance, term and permanent.

Term life insurance policies provide coverage for a fixed period that you choose, such as 10, 20 or 30 years. They pay a death benefit but do not accumulate additional cash value, as permanent policies do. The cost of term life can be much lower than permanent insurance, and the cost is fixed — it won’t go up during the initial term of coverage.

Besides using a commercial insurance company, service members and their families are offered low-cost term insurance through the military. Servicemembers’ Group Life Insurance (SGLI) provides $500,000 of automatic coverage unless you decide to reduce or cancel coverage.

Military coverage includes Family Servicemembers’ Group Life Insurance (FSGLI), which provides up to $100,000 in low-cost term life insurance for spouses and $10,000 coverage for dependent children of service members. Dependent children are covered at no cost.

Term life insurance may be right for you if you want coverage for a set period, such as until your children are out of school or your mortgage is paid off.

Permanent life insurance policies are intended to provide coverage for life. They pay a death benefit to the named beneficiary and can also accumulate cash value. Since cash value is so important to permanent policies, let’s examine how it works.

When you make payments to your policy, part of the premium covers the cost of insurance and administrative fees, while the remainder goes into a cash value account to be saved or invested. The cash value grows based on the policy’s interest rate or investment performance. These dollars can be accessed through policy loans or withdrawals but are primarily intended to fund the policy in the future.

Because of this cash value component, permanent insurance is generally more expensive than term. It’s important to structure and monitor your permanent policy to ensure the premiums and cash value are adequate to cover the cost of insurance to avoid a lapse in coverage.

Permanent life insurance may be for you if you want insurance that provides coverage for your entire lifetime and includes a cash value component.

Watch the video: Term vs Permanent Life Insurance

How much life insurance do you need?

It certainly depends on your current situation and future goals, but a good way to determine your need is using the acronym LIFE.

LIFE stands for:

• Liabilities (debts to be paid off, such as a mortgage)
• Income (replace any income loss needed by survivors)
• Final Expenses (burial and any others)
• Education and Other Goals (fund future education costs and other goals of survivors)

Once you calculate the above, factor in any available assets at your death (savings, investments, retirement funds) to cover your needs. If there is a shortage, consider life insurance to cover the gap and bring peace of mind.

Watch the video: How Much Life Insurance Do I Need?

Have questions about life insurance?

The Office of Financial Readiness offers free guidance from Personal Financial Counselors on your installation. They are experienced with insurance and understand the needs of military families.

MilSpouse Money Mission® is a Department of Defense resource that offers FREE personal financial education specifically geared toward military spouses. There is a Money Ready guide for various stages of financial life, a MilLife Milestones section to help you through the big moments in your military journey, a blog, spouse videos, quizzes, calculators and more!