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Adding coverage? Watch out for plans with ‘war exclusion'

Jan. 20, 2011 - 02:20PM   |   Last Updated: Jan. 20, 2011 - 02:20PM  |  
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KNOW YOUR LIFE INSURANCE

The National Association of Life Insurance Commissioners, online at www.naic.org, defines the different types of life insurance:
Term insurance
Individually purchased term life insurance provides coverage at a specific cost for a set length of time (term). The policy does not build up cash value, and the premium normally increases after a specified period. Servicemembers’ Group Life Insurance provides coverage for as long as a person is on active duty. Similarly, other employers may offer insurance policies for as long as they employ the policyholder.
Permanent insurance
This type of life insurance provides both a death benefit and, in some cases, a cash savings.
• Universal life policies allow policyholders the flexibility to change the death benefit from time to time, with satisfactory evidence of insurability for increases in coverage. Policyholders also can vary the amount or timing of premium payments.

• Variable life policies allow the money that remains after payment of premiums to be invested in vehicles of the policyholder’s choosing. This insurance has the option of a minimum guaranteed death benefit, but variable life insurance can be expensive and risky, depending on the type of investments made.
• Whole life policies provide lifetime protection at a level premium, which generally must be paid for as long as the policy is in force.

Service members who choose to buy life insurance in addition to Servicemembers' Group Life Insurance should shop carefully and read the fine print — particularly when it comes to "war exclusion clauses."

Unless troops opt out in writing, they are automatically signed up for SGLI coverage of $400,000, which costs $26 a month (plus $1 for Traumatic SGLI coverage for injuries and wounds). Dependent children also are automatically insured for $10,000; optional coverage of up to $100,000 for spouses is available.

Life insurance policies with war exclusion clauses do not pay out if the policyholder dies in a combat zone. SGLI, administered by the Veterans Affairs Department, has no such clauses. In fact, the main reason SGLI was created decades ago was to give service members an affordable life insurance option that would protect their families despite the nature of their dangerous profession.

A number of commercial companies, as well as nonprofits that cater to the military community, sell life insurance policies that generally do not have war clauses.

In checking on whether a policy has a war clause, it's also smart to look for any exclusions related to travel on noncommercial — i.e., military — aircraft.

"The goal is good quality care and coverage without a lot of conditions," said Tony Glassford, a retired Marine who is director of beneficiary services and education for the nonprofit Navy Mutual Aid Association.

Make sure you shop around for the best terms and prices that work for you. And make sure you can afford the payments — some plans can be costly to cancel.

Experts advise caution if you feel pressured to buy insurance right away to get a special deal. It's not uncommon for troops to be approached by salespeople in public settings, such as a shopping mall, and be urged to buy life insurance quickly. Some salespeople have even been known to offer to set up an electronic payment allotment on the spot. That should raise a red flag; follow your gut and walk away.

Free legal advice is available on base, so check with your legal assistance office or personal finance professionals before signing anything. If you're looking to buy extra coverage before a deployment, Glassford said, be aware that it may take time to activate the coverage, so ask the insurance company when your plan goes into effect.

Review the policy as soon as you receive it. The National Association of Insurance Commissioners notes that most states provide for a minimum 10-day grace period, during which you can cancel the policy for a full refund. If you'll be deployed when the policy arrives, ask the person who has your power of attorney to look at the policy.

NAIC provides a list of state insurance commissioners and their contact information on its website, www.naic.org.

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