Changes in your life affect your life insurance needs going forward. Servicemembers’ Group Life Insurance (SGLI) might be sufficient when you’re a young family starting out. But as you grow your family and take on new obligations, your needs change.
So, how can you choose the insurance that meets your current needs and figure out when it is time to make a change?
When to Reassess Your Needs
First, let’s take a look at when it might be time to update your coverage.
In general, it is a good idea to review your needs and coverage at least annually. This ensures that any life events (children, home purchase, or new financial obligation) are accounted for in your future coverage. Developing a habit of annually reviewing the “terms” of your home, auto, life, and disability insurance coverage can prevent leaving anything to chance.
Set aside some time specifically to evaluate how your life insurance needs have changed after any major life events.
The most important events to account for are marriage and parenthood. There is nothing more meaningful than growing your family. As painful as it is to think about, it is important to make sure that your family will be taken care of if anything were to happen to you or your spouse. That means purchasing an amount of life insurance that not only matches your family’s minimum needs today, but considers the loss of income, the loss of future income, or providing for childcare. Each new family member will add needs that will have to be met by your life insurance policy.
That said, a growing family is not the only reason to reevaluate your life insurance coverage. Other life events which merit examining your coverage include buying a house, transitioning out of the military, and retiring. For example, term life insurance may have been the right choice to supplement SGLI during deployment, but you may want to transition to a permanent life insurance policy as a long term estate planning solution when you or your spouse leaves the military.
Determining Your Needs as Your Family Grows
There are many ways to determine your current life insurance needs. Some of the most popular methods include:
- Rules of Thumb (i,e., 10 times your annual salary)
- The Human Life Value (i.e., present value of the family’s share of the wage earner’s future income)
- Capital Retention (i.e., preserve assets and have the beneficiary’s income needs supported by income from the assets)
- The Needs Approach (i.e., consider assets and income available at death to pay for the remaining financial obligations)
At Navy Mutual, we find that the Needs Approach is the most helpful for our Members. It allows you to choose the coverage that will protect the ones you love without paying for coverage that you do not need.
The basic calculation to determine the right amount of coverage through the Needs Approach is as follows:
Financial Obligations – Assets = Necessary Coverage
First, add up all outstanding financial obligations including mortgage payments, tuition for your children, and living expenses for your family. Next, subtract the value of your assets, include only assets that will be available for liquidation should you pass. The resulting number is the amount of money that would take care of your family’s needs if anything happened to you.
For a Needs Approach worksheet and more information on life insurance, download Navy Mutual’s life insurance guide.