On your terms: whole life coverage or term life insurance?
The next question that comes up: will term life insurance or whole life insurance best serve my military family needs?
For some in the military, term life insurance is adequate. Term life insurance covers you and your family for your life, for periods of one year to 30 years. Upon your death, a term life policy would pay your beneficiary the face value of the life insurance policy.
Others in the military prefer whole or universal life insurance. Whole life insurance can be seen as a combination life-insurance-and-forced-savings/investment. As you pay insurance premiums into your whole life insurance policy, you build cash value that you may borrow against later. The interest income on your whole life insurance premiums is very low, but knowing that you can also borrow against the cash value of your policy at low, fixed interest rates, serves some military families very well.
Term life insurance or whole life insurance?
Which coverage is best? The answer is not simple. It depends on what you want your life insurance to accomplish for your military family.
Term insurance is excellent to replace income for young growing military families if a wage earner dies. However, estimates reveal that less than one-percent of term policies sold ever pay their death benefit. Why? The term of coverage often expires before you die.
Term coverage almost always stops well before normal life expectancy is reached and life expectancy is steadily increasing. If a husband and wife are both age 65 today, there is a 50% chance one of them will live to age 92 and a 25% chance one will reach age 97. Term life insurance coverage primarily protects against premature death.
While term insurance plans can be exceptional values for the young growing military family, it becomes very expensive when you reach your 60s and 70s.
If you already have a military money management style that includes strong savings and investment plans, you may not need the extra-savings of a whole life insurance policy. If you choose a term life insurance policy, you can get more coverage for less cost - but less ability to borrow against your premiums.
If you want to make sure there is a death benefit for your military family at the time of your death, whole life coverage is the answer. There are many reasons to consider whole life coverage.
Whole life insurance is a good way to build an estate for your heirs. If you had three children and wanted to leave each of them $100,000, a whole life policy for $300,000 with three primary beneficiaries would accomplish that goal.
Whole life insurance can be there to provide the liquid funds that your family may need at the time of your death, to pay costs associated with your estate. A whole life insurance death benefit can provide funds for your military family so that they do not have to liquidate other assets such as equities or real estate at an inopportune time. Since life insurance passes directly to a beneficiary, it also avoids probate and other administrative issues.
Whole life may very well fund income during military retirement. For example, if a married couple is living off Military Pension and Social Security and supplementing their income with private savings, there will be a substantial decrease in both the pension and Social Security when the service retiree dies. The Military Pension will terminate if the military retiree is not participating in SBP and at best it will be reduced to 55% of that pension under SBP. Total Social Security income will be reduced as well.
Whole life insurance can provide funds to compensate for this loss of military retirement income. Additionally, whole life has cash value that can be accessed through a loan or be converted to an annuity to supplement retirement income when insurance is no longer necessary.
The bottom line is that both term and whole life can have a place in your estate and financial planning. Most military families would be well served to have an appropriate amount of each. The sooner you start a whole life plan, the lower the premium; you may even have the plan totally paid up before your military retirement.
The choice is yours; just make sure the price you pay is right for you.
