A reader writes:

My ex-spouse has in the divorce decree that they’re the sole beneficiary from my VGLI. Do you know if I can get another policy under the VGLI for my new family?

The answer is complicated because there are so many limits on how much VGLI coverage you can have and when you can buy it. Please keep in mind that I’m not an insurance expert (I don’t even carry life insurance). You’ll need to confirm your options with the VA’s Office of Servicemembers Group Life Insurance and with your financial advisor.

You’ll also want to check prices with other insurance companies because they may be able to tailor their policies to your situation. You might even be able to buy civilian insurance for less than the VGLI premiums. This is especially true if you decide that you want a single-premium policy or if you’re only carrying the insurance for a limited period.

First the dollar limit: you can have up to $400,000 of VGLI coverage. The VA used to also limit your VGLI coverage to no more than the amount of the SGLI you carried before you separated from the service. However, since April 2011, veterans have been able to raise their VGLI coverage up to the $400K limit.

The good news is that this can be done without additional medical underwriting, but unfortunately this can only be done in $25K increments every five years. (This additional purchase opportunity also stops when you reach age 60.) You might prefer to use this option to buy more insurance with your family as the beneficiary instead of your ex-spouse.

You may be able to convert some of your previous SGLI coverage to VGLI, but that option expires in one year + 120 days after you separate from the military. If the conversion is more than 240 days since you separated from the military (but still less than one year + 120 days) then you’ll have to meet the VA’s health requirements and answer a health questionnaire.

Let’s walk through an example. assume you leave the military with $200K of SGLI coverage, and you convert $100K of that to VGLI with your ex-spouse as beneficiary. You still have one year +120 days to convert the remaining $100K of SGLI to VGLI for your new family. If you do it after the 240-day limit since you separated then you have to meet the VA’s health requirements and answer their questionnaire. After that year + 120 days limit since your separation, though, you’re done with converting SGLI.

You can still buy another $200K of VGLI for your new family, up to the $400K limit. However, now you have to wait until five years since your last conversion, and you can only purchase the additional VGLI in $25K increments. This opportunity expires when you reach age 60, and eight purchases of $25K (8 x $25K = $200K) would take 40 years. You’re probably too old to have enough time to reach that dollar limit.

If your ex-spouse is already insured up to $400K (or once you reach age 60) then you’re done with VGLI. You can’t buy any more of it for your family. However, you may still have other options.

You want to buy life insurance for your new family, but how long will you need it? Until your kids reach adulthood and no longer need your financial support? Until you retire from working and start drawing a pension with survivor benefits? Until you start drawing Social Security (which includes survivor benefits)? These are all time periods with expiration dates when one source of income could be replaced by another. When your insurance need has an expiration date then you might prefer buying term insurance from a civilian company, not just the VA. I recommend that you consult USAA life insurance or CFP, military veteran, and life insurance expert Jeff Rose.

If you want to insure your new family for the rest of your life then you could buy a single-premium policy. However, this is a bet with the insurance company that you’re going to live longer than if you had invested the premiums for your family for a certain number of years. If you’re in good health then it might make more sense to self-insure by investing that premium in a diversified balanced portfolio, or by boosting your savings rate. This is not an easy decision to calculate (and your beneficiaries may be skeptical) so you should check your spreadsheet with both the life insurance company and your financial advisor.

Perhaps your best option would be to buy out your ex-spouse. Maybe they don’t need the life insurance coverage anymore and would be happy to modify that aspect of the divorce decree in exchange for more money from you now. In that case the price of buying out your ex-spouse would have to be less than the expense of buying new insurance. You’d also need to verify with the VA’s Office of Servicemembers’ Group Life Insurance that you’re able to switch the beneficiary.

Related articles:
Military insurance: SGLI, VGLI, SBP, and other benefits
Book Review: “Soldier of Finance” by insurance expert Jeff Rose
Protecting Your Military Benefits In A Divorce
Military retirement and divorce
Pricing insurance and investments

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