Here's why military members don't need whole life insurance
As a member of the US Armed Forces, you know that there is a chance that you could leave this earthly plain earlier than expected thanks to the nature of the profession of arms. Even for the majority of us who don't have combat jobs, we still tend to have more dangerous jobs than the average civilian. We also work long hours that make us prone to accidents no matter how many safety briefings we have to sit through. With all of that established as truth, you may have been approached by an insurance salesman at some point during your career. Maybe this salesman is a friend or a friend of a friend. They might tell you that they have your best interests at heart. But the minute you hear the words "whole" or "universal" in conjunction with the words "life insurance," you'll know it's time to respectfully but rapidly get out of that situation.
Why are Whole and Universal Life Insurance policies so bad? Well, first of all, they're extremely expensive. Compared to Term Life Insurance, you will most likely be looking at premiums many multiple times higher with Whole or Universal Life Insurance. They're often marketed as a kind of tax advantaged retirement account or "an asset". The truth is, they're just not good at that job. If you are extremely wealthy and you want to avoid estate taxes, they might be a small part of your portfolio. Otherwise, we can talk about this subject again when your assets are worth more than $2,000,000.
If you insist that life insurance is a good investment, let's take a deeper look. For a hypothetical 35 year old, a $500,000 whole life insurance policy might cost $399/month. That is $377 more than a 20 year term policy for $500,000 that can be had for $22/month. $377/month could go a long way towards funding your IRA or TSP, so you would still be saving on taxes and providing for your family's needs after your death with the term policy. But, on top of the tax benefits, instead of a $111,000 cash value at the end of 20 years for the whole life policy, your IRA or TSP could have an additional $202,000 of value (assuming admittedly high 8% returns). The implications of this hypothetical scenario should be obvious. Buying term life insurance and investing the difference in tax advantaged accounts is your best bet.
So, what about providing for your family in the event of your untimely death? The answer is simple and it's as easy as going to your base Force Support Squadron (if it's not a training day) and filling out the paperwork to start SGLI (Servicemember Group Life Insurance). SGLI is as extremely low cost term-like insurance policy with no requirements for blood tests or extensive medical certifications. You can purchase up to $400,000 of coverage for less than $30/month. $400,000 is enough to give your family $80,000 a year for 5 years if it sits in a savings account. If your family invests it, it can be worth $16,000/year almost indefinitely.
If you require more than $400,000 in life insurance, look for a highly-rated term life policy. Depending on your savings rate, you may need no more than 10-20 years of coverage. Once your net worth reaches a high enough level, life insurance becomes a waste of money and you should be self-insured. But for now just say no to Whole Life Insurance.