Given the emotional stress of divorce, life insurance can sometimes get overlooked with Arizona military families. Importantly, maintaining life insurance during and after divorce can secure a source of funds to replace child support and spousal maintenance obligations. When the obligor passes away, support payments stop unless alternative arrangements were made. The former spouse and dependent child still need those resources. Life insurance continues to be the best method of providing for that contingency. Although both spouses should have life insurance policies, insuring against the death of a civilian obligor spouse is usually less problematic. Being in the military complicates things.
Downplaying the importance of life insurance coverage as a financial blanket of protection for dependents is not a good strategy in military divorce. Be prepared. Have a plan to use life insurance on both spouses to satisfy support obligations upon the death of either. Remember that both parents contribute to their child’s support.
Life Insurance as Replacement Support for Dependents
The risk of serious injury or death is all too real for deployed service members and their loved ones back home. If you’re not carrying sufficient life insurance now, let support obligations in divorce motivate reconsideration. Why? There are strategies to negotiating specific terms in a separation agreement regarding reasonable life insurance coverage for the benefit of a child or former spouse.
Do you have minor children? Child custody must be determined – legal decision-making and parenting time – with child support orders in compliance with the Arizona Child Support Guidelines. Will life insurance proceeds be placed in trust for the education, health, and welfare of your child? Will your former spouse, as survivor, receive the entire payout directly? How best to prevent the other parent from spending the life insurance money on everything but the child’s care? There is much to consider as you develop your military divorce strategy.
Government Life Insurance, Private Policy, or Both?
There are two basic categories of life insurance we need to discuss. The first category being group life insurance through the federal government. The second being life insurance purchased in the private sector. For most military families, each type has a place in protecting beneficiaries should the service member be wounded or killed in combat abroad, injured while engaged in training exercises, or die in a non-service-related event.
Military divorce is not a common practice among Arizona attorneys. Call Stewart Law Group at 602-548-3400 and we will schedule a meeting for you with one of our military divorce attorneys. Ask questions. Have a helpful conversation with an experienced, caring professional who appreciates all aspects of military life. An attorney can offer guidance at the initial consultation regarding the purpose of life insurance with either spouse on active duty, in the reserves, or retired on a military pension.
Military Life Insurance for Service Members
With divorce pending, look carefully at government insurance programs through the military. The primary programs available to current and ex-military are:
- Servicemembers’ Group Life Insurance (SGLI)
- Family Servicemembers’ Group Life Insurance (FSGLI)
- Veterans’ Group Life Insurance (VGLI)
The maximum life insurance coverage a service member may purchase through the SGLI and VGLI programs is $400,000. Servicemembers’ Group Life Insurance Traumatic Injury Protection (TSGLI) is included in both.
Servicemembers’ Group Life Insurance
Life insurance coverage under the Servicemembers’ Group Life Insurance program, or SGLI, is automatic because of its value. In fact, it’s so important that choosing to opt-out of SGLI can only be done by signed writing.
With the change divorce brings, an attorney with Stewart Law Group will discuss the pros and cons of modifying SGLI coverage. Life insurance in military divorce should be raised when negotiating a separation agreement. Whether to increase coverage to the $400,000 maximum. Whether to change beneficiaries. Whether to create a trust for the child beneficiary and similar concerns.
Know that within 120 days of military separation the service member’s SGLI may be converted to a permanent commercial policy, such as whole life, with variable premium levels. That’s a limited option, but worthy of serious discussion depending upon your circumstances.
Who is automatically eligible for SGLI coverage? Most spouses will be covered because they are one of the following:
- Active duty Army, Navy, Air Force, Marines, or Coast Guard;
- Commissioned members of the National Oceanic and Atmospheric Administration (NOAA) or U.S. Public Health Service (USPHS);
- Cadets or midshipmen of a U.S. military academy;
- Members, cadets, or midshipmen of the Reserve Officers Training Corps (ROTC) engaged in authorized training and practice cruises;
- Ready Reserve or National Guard scheduled to perform 12 periods of inactive training per year; or
- Service members who volunteer to mobilize in a category of Individual Ready Reserve (IRR).
How much coverage is automatic under the SGLI program? The eligible service member who takes no action regarding SGLI group coverage will, by default, get the maximum coverage of $400,000. DFAS automatically deducts premiums from base pay. Actually, most service members choose maximum coverage. Encouraging full participation in SGLI, the U.S. government wants every soldier’s, sailor’s, and marine’s family to be financially protected against loss of a parent or spouse, whether or not it was a service-related injury or death.
How much are SGLI monthly premiums? Monthly premiums on a $400,000 benefit are neither nominal nor excessive. SGLI may be automatic unless reduced or declined, but it is not mandatory. The service member may opt out of military-offered life insurance altogether, just as he or she may reduce the benefit amount with a corresponding reduction in monthly premiums. The service member can reduce his or her life insurance benefit by increments of $50,000, but only by signed writing.
Consider an example. Pat is an unmarried ROTC midshipman with no children; she reduced SGLI coverage to $300,000. Compare that to Marty who is married with two kids in grade school and one on the way. He has $400,000 in SGLI life insurance coverage with $100,000 FSGLI current spouse coverage and $10,000 dependent children coverage. (See below.)
When to Seek Private Life Insurance Coverage
Understand that having SGLI coverage does not eliminate the need for a private life insurance policy if you are in a military divorce situation. Both private and government life insurance may be used to ensure support of beneficiaries after the support payor’s death.
Life insurance proceeds can provide for a former spouse, minor child, or disabled adult child according to the support terms in the divorce decree. Sole reliance on SGLI coverage as a backup is a dicey proposition for the supported party or dependent child. Why? Because the service member retains the right to voluntarily and unilaterally change SGLI beneficiaries after the divorce.
When negotiating a settlement in your military divorce, agreeing to both government and private life insurance coverage may be the better choice when the service member will be ordered to pay spousal maintenance and child support.
The Support Problem with SGLI
Understand, first of all, that SGLI coverage will end six months after the spouse’s separation from military service, whether divorce is pending or not. (An exception is the SGLI Disability Extension which allows free coverage for two more years if the service member is totally disabled.)
Second, relying exclusively on SGLI benefits to pay court-ordered spousal maintenance and child support obligations may be problematic when it comes to enforcement. Federal law preemption prevents Arizona court-enforcement of a service member’s support obligation against the U.S. government if he or she changed SGLI beneficiaries. Ridgway v. Ridgway, 454 U.S. 46, 102 S.Ct. 49 (1981).
What if the service member remarries and designates the current spouse as the beneficiary? The court may have ordered the service member to maintain the former spouse as SLGI beneficiary. However, the ex-spouse may have a problem because he or she cannot prevent the service member from changing SGLI beneficiaries after the divorce. That is the main argument for private insurance in military divorce, but it’s not the only one.
Private life insurance may be a better option as a designated source of support payments, regardless of which party is ordered to pay the premiums. Private life insurance may cover the military spouse with the other spouse holding the policy. The military spouse as insured (and child support obligor) could pay the premiums with the other spouse named as beneficiary until, for example, their youngest child turns 18 or graduates from high school.
Where will the money come from to pay insurance premiums? This is a negotiable point in divorce. One illustrating the value of hiring an attorney with a strong military divorce practice. The source of funds could be the supported spouse’s post-divorce income or wages. Or a lump-sum could be paid to the supported spouse sufficient to cover one, four, or six years in premiums. Or premium payments could be included in the amount the other parent receives in monthly support. These and other creative options should be discussed with your lawyer.
The Problem with Private Life Insurance
When insuring for active duty military, private insurance is not trouble-free either. Here’s why. Any service member – active duty, reserve, or retired – is free to buy a life insurance policy from a private insurer. However, the problem for active duty and reserve component is that there will almost certainly be a war exclusion clause and non-commercial flight exclusion clause. What that means to the beneficiaries is the private insurer will not pay on a claim involving the service member’s death resulting from war, military force, or military aircraft crash. Of course, such exclusions are not found in the SGLI and VGLI military policies.
Insuring the Spouse and Dependent Children of Service Members
What about insuring a civilian spouse and dependent children? The service member with full-time SGLI coverage may add Family Servicemembers’ Group Life Insurance (FSGLI) to insure against the death of the current spouse and death of any dependent children.
Current Spouse Coverage: FSGLI current spouse coverage is capped at $100,000 and is offered in $10,000 increments. If the current spouse is a civilian and the military spouse does not opt out in writing, then DFAS will automatically deduct FSGLI premiums from base pay. When both spouses are service members, their maximum combined coverage is $500,000 — that’s $400,000 SGLI plus $100,000 FSGLI.
Dependent Child Coverage: FSGLI dependent child coverage maxes out at $10,000 and, unlike current spouse coverage, is free and cannot be reduced, declined, or canceled. The service member’s “dependent children” include biological, adopted, step-children, and certain unmarried adult-children. Coverage on dependent children is effective when:
- The service member enters military duty; or
- The child is born or adopted; or
- The step-child begins residing in the military parent’s household.
Termination of FSGLI: Divorce terminates FSGLI over the “current spouse” when he or she becomes the “former spouse.” Automatic FSGLI termination occurs six months (120 days) after the service member separates from military service. A private life insurance policy (for example, term life insurance) is a viable option whether the now former spouse is retired from the military or a civilian.
Coverage for dependent children under FSGLI may continue unabated after the divorce so long as full-time SGLI is neither canceled by the service member nor terminated upon separation from the military. Will the service member be separated from military service while the child is still a minor? If No, then FSGLI dependent child coverage stays in effect unless the service member opts out of SGLI coverage altogether. If Yes, then negotiate appropriate private life insurance coverage to fill the void.
These are important factors to consider. Despite being separated with divorce pending, the death of the other spouse is a genuine hardship. At a minimum, you may want to keep FSGLI current spouse coverage until the divorce is final if possible. Talk to your lawyer.
The FSGLI program provides life insurance only. There is no disability coverage. The service member does have an Accelerated Benefits Option (ABO) for up to 50% of the policy amount. The ABO can be exercised only when the current spouse or dependent child has a life expectancy of nine months or less.
Be aware the service member may reduce and even cancel FSGLI current spouse coverage anytime. Dependent child coverage cannot be reduced for any reason, however, so long as the service member is SGLI insured. (But he or she may cancel SGLI, eliminating FSGLI in the process.) The dependent child coverage is set to terminate on the service member’s death, or 120 days after termination of SGLI coverage, or 120 days after the child loses insurable dependent status.
Veterans’ Group Life Insurance
The federal government also provides Veterans’ Group Life Insurance, or VGLI. This is a way to continue life insurance coverage after separation from military service – SGLI stops and VGLI begins. These are the basic VGLI enrollment requirements:
- The service member has full-time SGLI; and
- The service member has up to one year plus 120 days from his or her separation date to apply.
What about service members with part-time SGLI? If the military spouse has part-time SGLI, was injured or disabled while performing his or her duty (including travel to and from duty), and now is uninsurable at standard premium rates, then that service member is also eligible to apply for VGLI coverage.
Can you avoid questions about your health status? Yes, by applying for VGLI within 240 days of separation. Is the military spouse uninsurable because of injury, illness, or disability? Prompt application for VGLI ensures life insurance coverage without further inquiry.
The maximum VGLI coverage matches the SGLI benefit: $400,000. Veterans on VGLI can increase coverage by increments of $10,000 up to the maximum. Until age 60, vets can increase their coverage every five years by $25,000. As with SGLI, ex-military may convert VGLI to a commercial policy. Both government insurance programs are administered by the Office of Servicemembers’ Group Life (OSGLI).
So long as premiums are paid, VGLI is forever. However, the same problems SGLI poses to former spouses wanting to secure payment of support persist with VGLI. The military spouse may be ordered to maintain the former spouse as beneficiary of VGLI in the divorce decree (a state court decree), but that will not prevent him or her from changing beneficiaries under federal law. State law is preempted by U.S. law on this matter. The divorced veteran’s change of beneficiary, when voluntary, is permissible despite a state court order to the contrary.
Life Insurance and Military SBP
In military divorce, private life insurance may also be used to protect the former spouse against loss of promised benefits from the service member’s Survivor Benefit Plan (SBP). Two points about the connection between life insurance and SBP:
- Private life insurance premiums are typically less than SBP premiums. The same monthly amount can purchase a greater benefit for the survivor, or beneficiary.
- Generally, when the service member selects reduced SBP coverage it cannot be increased later. Reduced SBP coverage may be insufficient in supporting the former spouse and conflict with the divorce decree. When an active duty divorced spouse declines SBP coverage upon retirement, his or her declination is likely irrevocable. It’s a done deal. However, private life insurance on the service member could protect the former spouse with a death benefit. One that protects the former spouse in the event SBP benefits are lost. Allowing for recovery of lost SBP payments related to military pension division in divorce and payment on the SBP death benefit.
Talk to an attorney about the nexus between life insurance and SBP. Also, a forensic accountant may need to value any lost or diminished SBP benefit. Things can get complicated!
How Much Life Insurance Coverage is Enough?
Lastly, when considering how much life insurance coverage is enough, you need to determine what your family’s financial needs are and will be in the future. What is your expected contribution to family income? What about the other spouse? Without you, would your children have sufficient resources to live on with insurance proceeds included? Were you ordered to pay spousal maintenance to your former spouse?
When shopping for private insurance, namely life and disability, make sure that the insurer you select serves the needs of service members. Ask the following questions before deciding on any non-military life insurance policy:
- Will all or part of my coverage be suspended or cancelled if I’m deployed?
- What happens if I’m relocated out-of-state or must be away from home for an extended period?
- How will the insurer handle any change in my military situation?
- Exactly what circumstances or conditions will cause my coverage to lapse?
Risks and uncertainties unique to military life can put a tremendous strain on families – the divorce rate among couples in the Armed Forces reflects that. For most people, divorce is a difficult emotional process and can be a complex legal one. The reality of divorce in Arizona gets even more challenging for service members and their spouses. Don’t let tough circumstances wear you down. We can help.