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I have a general life insurance question. My husband and I just bought whole life insurance to replace our SGLI after we retire (we're both Lt's in the Air Force). Our agent said that it was best to start now while we're young because the price will increase as we age. So now we have a sort of double life insurance: SGLI and whole life. Is this a smart thing to do? Is there some sort of life insurance that starts when your SGLI ends that is still cost effective?

I plan on doing a massive amount of research on life insurance because I am way too ignorant in this subject which is highly uncomfortable. I just hate to pay for life insurance that I do not need.
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I don't think you ever need whole life; term is what we've always gotten. When do you plan to retire? If you are staying in for 20 years, that seems a long time to pay for extra insurance....
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Our agent said that it was best to start now while we're young because the price will increase as we age.

Dare I guess that he was a representative of First Command a.k.a. USPA & IRA? Regardless of the answer to that question, I believe that level term life insurance is a better alternative than whole life for healthy young officers.

I am presently 35 with 13 years commissioned service, a wife and two children. I am just now adding a 20 year level term policy to cover myself and my civilian wife ($200k for me and 100k for her) for about $21 a month. I will be overinsured for at least the next seven years but I have locked in a good term rate while I am relatively young and will be covered until both my children have graduated college. After that point I will not need that much insurance. In the mean time I will invest the difference between the term premium and what I would pay for a much more expensive whole life policy in equities. Over the course of 20 years that will grow to a considerable sum.

Be very wary of First Command and other proponents of whole life insurance. They try to sell whole life policies as being both insurance and and investment when it turns out to be expensive relative to the death benefit as life insurance and woefully underperforming compared to broad stock market indices.

For about three years I was a *client* of USPA and have been broker free for about seven years. Their lousy front loaded funds have underperformed the market consistently throughout that time and I have never regretted pulling out my money and investing it myself.
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Yes, this is with first command. Fortunately life insurance is the only thing we have through them (for how long, who knows. I'm paying WAY more than $21 a month). I just had to tell my First Command agent that we were not interested in their mutual funds (it took 50% of the money we put in for the first year, and the expense costs were over 1%). It wasn't easy because he's a nice guy, but it was necessary.
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SGLI and whole life. Is this a smart thing to do? Is there some sort of life insurance that starts when your SGLI ends that is still cost effective?

Sierramoon,

My wife and I were both active duty and I switched all of our life insurance to AAFMAA (Army Air Force Mutual Aid Association). We both took the CAP (Career assistance program) loans, something like 1.5% on $5000 and with that loan we signed up for their insurance. We cancelled our SGLI. As for specifics we each have a 20 year pay whole life policy for 10K, these came as part of the loan package, and an additional 600K for me and 250K for my wife (she no longer works outside of the house). I have found AAFMAA to be an outstanding company with great products and the prices are much better than SGLI. Our current term policies are level to age 50 so it does not matter when I retire it keeps going. I can extend that insurance in 5 year blocks as I see fit. We also carry 100K, 7 year pay annuities on our children, these are more of an investment than an insurance. My dad started with AAFMAA when he was commissioned in 1955 and brother also in 1984 so we have a family tradition. Check it out I think it will be worth the look.
www.aafmaa.com

JaredS

DS: I have no affiliation with AAFMAA except as a policy holder.
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For about three years I was a *client* of USPA and have been broker free for about seven years. Their lousy front loaded funds have underperformed the market consistently throughout that time and I have never regretted pulling out my money and investing it myself.

I beat you out by 19 months, just squeeking in under the 18-month out policy, so I got half my commission back. And the funny thing was, this was during the depths of the bear, so the value I cashed out (with 50% of my commission) was MORE than it would have been had 100% been invested the whole time.

- Tom
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I plan on doing a massive amount of research on life insurance because I am way too ignorant in this subject which is highly uncomfortable. I just hate to pay for life insurance that I do not need.

Hi Sierramoon,

Treat life insurance as rationally and objectively as you possibly can. You must detach yourself from the situation. The purpose of life insurance is to help the beneficiary live without the deceased's income (in my mind at least). It is not to help the beneficiary feel better. An insurance salesman has only one thing to sell.....peace of mind.

Personally, I have $250K level term life policy with AAFMAA. AAFMAA's cheaper than SGLI and it stays with you if you separate, plus it gives you a partial premium rebate each year. I do not have a policy on my wife because I simply would not miss her income if she were to pass away (eventhough she is a professional woman).

I do not believe that whole life is the best path for 99% of the population (the 1% are insurance salesman).....

Jared, a fellow AF Lt
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Hi Sierramoon7:

The folks who have already written you about the advantage of term insurance over whole life are, in large part, correct. "Buy term and invest the difference" remains a good philosophy, IMO. To some extent, admittedly, this is a matter of personal preference. There is a school of thought that recommends that every married individual have a modest amount of so-called "permanent" insurance. The theory contends that this gives a surviving spouse a temporary "cushion" that will be available if the first spouse has the bad timing to die when the markets are down. Even if this is later in life, after financial independence has been achieved, the surviving spouse can still use the proceeds to meet immediate expenses and live for a year or so without cashing in any investments. In addition, the theory goes, both spouses can invest more aggressively while alive, knowing they have the whole life insurance providing them with that additional flexibility. I'm not inclined to argue against this point of view too strongly - as long as you don't over-do it. But it not the way I would (or did) go personally.

I'm remain very partial to term. Never forget that you have to achieve financial independence to make the above theory work - and a lot of expensive cash value life insurance may hinder you in achieving your financial goals. Any cash value policy, including whole life, is usually a good deal only for whoever is selling it to you.

To start your "massive amount of research" (Do you really want to spend a lot of your valuable time on this subject? :-) you might want to check out Andrew Tobias's "The Only Investment Guide You'll Ever Need". It includes discussion on the the subject of life insurance, and on financial planning in general. This book is short (under 300 pages), a fun read, and the best "starter" book I've found for financial planning and investing.

If you really want go further, you could try reading Norman F.Dacey's "What's Wrong With Your Life Insurance". This book may be out of print now - it was originally written in 1963, with the most recent printing (the version I have) back in 1989. Still, you should be able to get a copy from an online source. This text remains a classic - it is the definitive work exposing the whole life insurance industry. The story is not pretty. This provides important information for anyone who really wants to study the subject seriously.

Finally, after your research, if you and your spouse do decide a whole life insurance policy is appropriate for one or both of you, be sure you compare the policy illustration for whatever you have or are considering with one for a policy offered by Navy Mutual Aid (or Army/Air Force Mutual Aid) Association. A whole life insurance policy from one of them will almost certainly provide so much more value than what you could get from any commercial company (to include USAA) that it won't even be a contest.

Good luck.

Mike L
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