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Choosing Life Insurance

Is SGLI Coverage Enough for My Family?


If you have ever calculated how much life insurance you really need, you’ve likely ended up surprised and feeling behind. For military members, Servicemembers Group Life Insurance (SGLI) comes as part of the employee benefit package. While this type of life insurance is affordable for most people, and provides breathing room by offering a maximum death benefit of $500,000, the reality is that SGLI is not enough life insurance for most military families. Even adding this amount to the recently increased family servicemember coverage life insurance (FSGLI) of $100,000, survivors can still face hardships due to an inadequate, long-term financial cushion. When military families calculate how much life insurance they need, there are a variety of effective methods.

Method 1: 10X Your Income

For some time, it was common to purchase a policy that was at least equal to 10 times your income. This method can cause issues down the line as most people take out these policies while their income is low, failing to increase the policy through the years as their income increases. In addition, unless someone lives way below their means, this amount typically will not provide a surviving spouse or beneficiary with financial independence and carry them through retirement.

Method 2: 10X Your Income + Current and Future Debts

Another popular method for calculating coverage needs is by multiplying your income times ten, then adding in current debt such as mortgages and vehicles, and future debts such as college educations. This method, however, can also leave out critical estimates and calculations.

Method 3: DIME Formula

Perhaps one of the most effective methods for accurately calculating how much life insurance a military family needs is the DIME formula. This easy-to-remember acronym could be your best option when estimating your life insurance needs. Here are factors that you need to consider:

D (Debts & Finals Expenses): Calculate all of your debt (excluding mortgages), such as credit card balances, vehicle payments, and your funeral and burial expenses.

I (Income): Next, consider your income. For this calculation, we are going to stray away from the “income X 10” equation by personalizing it to your situation. Let’s say you have young children, and you want to ensure your spouse and children have a financial cushion that will last until your youngest child graduates college. For some families, this may result in a need of calculating 20 years of income, while for others it may be less. When calculating your income, don’t forget to also factor in bonuses and any incentive payments.

M (Mortgage): Be sure to add your mortgage balance and give yourself a cushion if you have rental properties.

E (Education): Last, calculate the education expenses for all of your children and add this to the figures above.

When you work through more comprehensive life insurance formulas such as the DIME method, you give more thoughtful consideration to the appropriate amount of life insurance you need to properly care for your family. If you have been wondering if SGLI coverage is enough for your family, you likely realize now that $500,000, while a substantial and helpful amount of coverage, may not be enough to carry your family long-term and provide them with the level of care you desire.

While this may seem complex, working with a Relationship Manager the Financial Planning team at AAFMAA Wealth Management & Trust can help you accurately calculate future earning growth, military career special pays, educational costs, etc. We can help explain the various types of life insurance available to you and help you create a financial plan that will provide the highest level of financial stability and security you desire for your family.

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