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Consumer Watch: For vets, it pays to shop around for life insurance

Aug. 20, 2014 - 01:27PM   |  
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A 75-year-old veteran wrote in to express frustration that rates for Veterans’ Group Life Insurance increased in July for those 70 and older, noting that it’s hard to find comparable private-sector coverage at that age.

VGLI rates increased by 5 cents per $1,000 of monthly coverage. But apart from that, the monthly premiums also automatically increase every five years up until age 75, at which point veterans pay $1,840 a month for the maximum $400,000 worth of coverage.

VGLI is a term insurance program for anyone retiring or separating from the military. It requires no medical exam, regardless of any service-connected conditions, and it can be kept for life, unlike most private insurers’ term life insurance policies. But insuring less healthy and older people increases VGLI’s costs.

The veteran is right — buying life insurance is more expensive in the private sector as you age. But it’s possible to find a better rate than what VGLI offers. You can convert VGLI coverage to another insurance company that participates in the Veterans Affairs Department’s conversion program, without having to provide proof of good health.

The new policy must be a permanent policy, such as a whole life policy (i.e., it lasts a lifetime). A permanent policy is more expensive, but you might reduce the cost by buying less coverage if you don’t need as much at that age. For more information, visit www.benefits.va.gov/insurance/vgli.asp.

But there are still other options. I checked a couple of insurers that focus on the military community, AAFMAA and USAA, looking at rates for older veterans who were affected by the VGLI rate increase. (Keep in mind that rates are progressively less expensive for younger veterans, so it’s even more important to compare rates at earlier ages. Just make sure the policies’ terms fit your needs, too.)

Here’s what I found:

A 70- or 75-year-old nonsmoker getting a new five-year level term policy through AAFMAA would have to undergo a medical exam. If you’re in average or better health and still want term insurance at that age, you can probably save at least half or more on your monthly premium with an AAFMAA policy, and potentially with other companies, said Mike Meese, chief operating officer of AAFMAA. If you’re a smoker or are in poor health, you would most likely be better off staying with VGLI.

Most importantly, he said, “we would not recommend that they give up their VGLI until they confirmed that they had new coverage from us or another insurance provider.”

With AAFMAA, a 75-year-old male nonsmoker in average health would pay $818.60 per month for a five-year level term policy for $400,000 of coverage; $637 if in good health; and $448.20 if in very good health. That compares to a VGLI rate of $1,840 a month.You can buy a five-year term policy up until age 79. (If the veteran had started with the AAFMAA term policy at a young age he/she would pay $18.15 per month for $400,000 of coverage through age 50, and then could transition to the renewable term policy program through age 74.)

With USAA, a 70-year-old healthy male nonsmoker can buy a 10-year term policy for $400,000 in coverage for $350 a month, according to Bill White, USAA vice president of life insurance and annuities. Members age 71 and older are eligible to purchase only a permanent life policy. Requirements include a health questionnaire and a paramedical exam, including height, weight, blood pressure and blood and urine samples. For those with a more complex medical history, a review of specific medical records may be required.

There’s no question Servicemembers‘ Group Life Insurance is a good deal for troops — for as long as you’re on active duty, you’ll pay $29 a month for the maximum $400,000 of life insurance, regardless of your age, health, gender, smoking habits. But whether you’re expecting to leave the military within a year or so, or have left within the last few decades, As those quotes show, it pays to comparison shop for life insurance — but only after determining your bona fide insurance needs. For example, if insurance originally was purchased as a hedge to cover kids’ college educations, provide income for a spouse, and/or pay off a mortgage in the event of the policyholder’s untimely death, such needs can change or vanish over time.

Just don’t cancel any current policy before you lock in new coverage.

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