The Survivor Benefit Plan: Pros and Cons

The 2020 Military National Defense Authorization Act has brought many changes to the Survivor’s Benefit Plan. We are working on providing updated information about these changes and how they will impact the work service providers do with military families. Please check here for an updated post to be published July 28, 2020.

By Carol Church.

Military service members who have earned the right to a military pension typically feel justifiably proud and ready to enjoy this new chapter of their lives. At the same time, there is often more than a bit of anxiety over financial affairs as families make this transition. One major decision that needs to be made for families with a military retiree is whether or not to enroll in the Survivor Benefit Plan, or SBP.

What is the SBP?

The Survivor Benefit Plan can be looked at as a good deal on “life insurance” for survivors of military retirees. Families who enroll in the program pay a percentage of their retirement pay in exchange for a guaranteed income stream to survivors, should the military retiree die. This income streams lasts as long as the survivor is alive. Note that the most the SBP will pay out to survivors is 55% of retirement pay, which is what survivors receive in exchange for 6.5% of monthly retirement benefits. It is possible to pay less and receive less (the minimum benefit is $300). Note also that SBP is considered “paid in full” after 30 years or 360 payments.

Who Can Receive the SBP?

Most service members will choose to have the benefit go to their spouse, but families can have the benefit go to the service member’s minor or college student children, the spouse and the minor/college student children, an ex-spouse (this can also be ordered by a court under the terms of a divorce), or someone who has a “natural interest” in the retiree, such as a business partner.

It’s very important to know, though, that the spouse has a lot of power when it comes the SBP. In order to do anything other than the (most typical) choice of 6.5% pay deduction for a 55% benefit, the agreement and signature of nonmilitary spouse is required. This is also required for any changes down the road.

Why Choose the SBP?

  • Reliable source of income; provides peace of mind

The SPD is an easy and reliable way to provide a “safety net” in case the military retiree passes away, since in many military families, this will have been the more primary earner. Many families feel that the peace of mind the plan can offer is well worth the decrease in pension payments.

  • No health requirements or health exams

Unlike traditional life insurance, there are no health questionnaires and no requirement that the retiree undergo a health exam.

  • It is protected against inflation by COLA adjustments

The SBP benefit is adjusted every December based on the Consumer Price Index so that its value increases along with the cost of living. Typical insurance policies can’t offer this.

Why Opt Out of the SBP?

  • No survivors of concern

If a service member is unmarried with no dependents, there is no real reason to opt in. If the retiree later marries or has children, he or she can opt in at that time.

  • Some spouses may not need it

If the nonmilitary spouse has his or her own pension, 401K, etc., or if the family is financially well off, he or she may feel she will not need to rely on the military spouse’s pension in this way. It may be more appealing to enjoy a larger payout from the military pension funds now as a couple.

  • Dependency and Indemnity Compensation (DIC) benefits (paid out to survivors of service members who die on active duty or from a service-related injury or condition) can interfere

If the family will receive these benefits, they offset SBP benefits. Consider this situation carefully.

  • May not be a good choice if the service member is likely to outlive the spouse

If the spouse dies before the service member, no benefits will ever be received from the program (no refunds will be given). This is hard to think about, but should be considered in some cases, such as when there is an age gap, when the spouse is ill, or when the service member is female (since women typically outlive men).

What About Other Life Insurance Plans?

For some families, it’s possible that purchasing a term life insurance policy might offer a more attractive deal than SBP. However, this is only likely to be true if the service member is younger and in excellent health and if the family is willing to do careful research on which policy to buy (consider USAA, Navy Mutual, and the American Armed Forces Mutual Aid Association, among others). The SBP is very trustworthy—it will be there for families, no matter what. Families should also always keep in mind the COLA protections of the SBP, which are attractive and not available for reasonable cost outside the military.

Keep in Mind:

  • It isn’t easy to change your mind about opting into or out of the SBP (though there is an opt-out window between the second and third year of retirement). “Open enrollment” periods have rarely occurred—but very rarely.
  • If a couple gets divorced, the ex-spouse of a retiree can still be awarded his or her SBP.
  • If a recipient of SBP remarries, payments will stop. However, if this subsequent marriage ends in death or divorce, SBP payments start up again.
  • Putting children on the plan (minors only, or under 22 if students) in inexpensive and may be worth it.
  • SBP benefits, if paid out, are taxable, but the premiums are deducted from retiree pay before taxes, which reduces tax liability.
  • If the spouse dies first, no benefits will ever be paid.
  • Emotional and relationship issues are a reality when making this decision. Spouses may feel threatened if asked to give up the benefit.
  • Taking the CSB-REDUX lump sum (often considered a bad financial move anyway) means you will pay more to get the same benefits.
  • Pensions will be lower for those choosing to take the new Blended Retirement System, meaning that SBP should be lower as well. The current High 36 plan pays out at 2.5% times years served (minimum 20) times the “high 3” pay (the average of the member’s highest 36 months of base pay). Meanwhile, the pension members will get under the blended system is less—2% times years served times the high 3 pay. (This is made up for by additional funds in TSP, but that won’t be used to calculate SBP). If SBP is important to your family, this might influence your choice on whether or not to change to the Blended Retirement System.

More Information

Information from the Defense Finance and Accounting Service on the SBP

54 Replies to “The Survivor Benefit Plan: Pros and Cons”

  1. Howdy Molly!

    I’ve been scouring the internet for a few hours and have yet to find anything on premium increases. Do premiums for the SBP increase with age? If so, how often and at what rate?

    1. The premium is based on a percentage of the base amount. Therefore they don’t change. But with inflation it would increase based on that. If my spouses retirement pay is $3000.00, my premium for 55 Percent would be $195.00 and I would receive $1650.00 a month. Each year they calculate COLA and if that increased my spouses retirement pay from $3000 to $3120. Then my premium would go from $195.00 to $202.80. My benefit would increase to $1761.00. Hope this makes sense. And if your spouse passes on- you no longer pay premiums.

  2. We have no idea what the cost will be. We have no idea how much my husband’s pension is. Because of the Pandemic, there has been no transition classes. He filled out the retirement paperwork with his YN’s several month’s ago, but talking to Personal 3 days after retirement, they can’t find it. We are trying to fill out form 4700 on our own which has the SBP paperwork included. This was not included before. Originally we were lead to believe the assignment of the pension was just a normal benefit, not something you had to pay for.

  3. Hi Molly – I am the service member, enrolled in SBP, and paying the monthly SBP premium since my retirement. If my spouse (the only eligible beneficiary) happens to pass away before me due to severe illness, would I continue to pay the SBP premium after her departure?

  4. Now that the “widow’s tax” (VA DIC offset to SPB) is being ended by 2022 – will DFAS ask Congress for an “open window” for retirees to “opt in” to SBP? Many injured Vets facing military retirement were advised not to enroll in SBP because of the “widow’s tax”.

    1. Hi Phil –
      It does not appear there will be an opt-in period in Fiscal Year 2020. From the DFAS website: An election to decline or reduce coverage at retirement is irrevocable, regardless of rationale. Section 622 of the National Defense Authorization Act for Fiscal Year 2020 does not authorize retirees who previously declined or elected reduced coverage (such as electing child-only coverage at retirement) to re-enroll or change their level of coverage. See https://www.dfas.mil/retiredmilitary/survivors/SBP-DIC-News/#When%20my%20spouse%20retired

  5. So if the spouse is to die before the vet, no payment will be made to any one. Might as well commit Suicide before the spouse dies. At least she will be getting something before she dies. Why can’t the money put into the program be put into the vet’s TSP?

  6. So the military member gets the shaft If the spouse dies before the military member. He is put a significant about of money into the program and will lose is all. Why don’t they tell you that before signing up for the program? Now that I’m paid up, can I withdraw the money before anyone dies?

  7. Can I opt out now prior to official retirement date? I signed up for SBP at the retirement briefing, but have not yet retired (terminal leave) and have had time to find a better plan.

    Thanks, Stan

  8. My husband died in 2002. He was an E9 with 34 years of service. He retired in 1993. I have survivors benefits of $357. Is there any way this can be increased as this is the only benefit I have other than Trieste. I’m 73 , we were married 34 years. We were going to try to increase the benefit, but he developed cancer and died within 6 months .

  9. one of my members is a surviving spouse whose husband died in 1989. When she sought assistance with her death benefits at SAFB, she was told that she is not able to receive both SBP and the VA DIC compensation and she opted for the DIC instead of SBP. Now that the widows tax (offset) has been repealed, she would like to receive the SBP benefit and the DIC. I suspect that since that a the time of death, her husband was an USAF Captain, the DIC payments might have offset 100% of the SBP payment. If that is the case, will SBP resume automatically or must she take specific action to do so?

  10. I retired in 2012 after 23.5 years in the Army with a 100% rating. We have been paying into SBP and are at 98/360 years, over 8 years. Is my situation considered “a service-connected disability” with a “total disability rating held for more than five continuous years from the last date of active duty?” If so, may we withdraw from SBP participation? I understand “withdrawal is allowed because my surviving spouse will qualify for DIC benefits” as my death would be presumed to be from service-connected reasons. I understand a request for withdrawal requires the written consent of my spouse.

  11. I am 100% service connected disabled. I was told that after 5 years in the event of my death, my wife would get my VA disability payment and that I should opt out of SBP. Is this true?

  12. My father (87) died and my mother, his ex-wife unmarried, is listed on SBP. Is his current wife entitled to DIC or SSI? He was 100% disabled for more than 10 yrs. How does that work?

  13. I’ve paid 10 years of SBP and I am 70 years old, can I get out of paying SBP and what happens to the 10 years of contributions??

  14. This program needs to be explained fully before the retiring service personnel sign up. The program isn’t all it’s cut out to be for example almost 28 years paying into SBP spouse passed I will not get any refund . If you think about this program on the surface it sounds good but maybe an insurance policy is a better way to go.

  15. Hello,
    I have a question regarding survivors benefits for a widow. My deceased spouse, took an early retirement payout after desert storm. Am I still eligible for SBP or any other military pension program?

  16. What if I opt in and my spouse dies first? I understand that no pay outs will be made to my spouse but 2 things though;
    can I transfer it to a child at that point or anyone else?
    If not or if I chose not too will the deduction to my retirement pay stop?

  17. My husband divorced in 2012 and in the divorce he says that his ex-wife is the one who will receive SBP, but they did not do the process after divorcing so that she continues as the beneficiary, my husband and she did not know about that procedure, he spoke to Knowing his current wife had some benefit, they told him that he didn’t have SBP, that he could put me on.
    Can I have a legal problem, having a divorce order that the ex-wife is the beneficiary?
     

  18. Good morning. Does an SBP have to be accepted/declined by the Service Member at retirement (i.e., while they’re processing out of Active Duty or newly retired)?

    Also, how are announcements/info made available (e.g., via email) when there is an, “open window,” enrollment?

  19. Does the spouse need to apply for it after the service member dries or does it come automatically? If not where does the spouse need to apply for it?
    Thank you

  20. I am divorced and remaried i have made 298 payments into the SBP. What options do i have to assist my new wife should something happen to me? Can i change the name of my recipient

    1. Hello,

      I am not married and do not have children but was thinking about putting my brother under the Survivors Benefit Plan. Can I name a brother for SBP and if so, will I be paying more than the 6.5% ? Also, I have to pay back SSB/VSI bonus I received on active duty. If 40% of my retirement montly pay is being taken out to pay it back, can I pay off the entire amount at a later date ?

      1. Hi Richard –
        This is what I found on the DFAS website: “Natural Interest Person (NIP)
        If you have no other eligible dependents, you can elect to cover an individual in whom you have a legitimate insurable interest. Examples might be a brother or sister, or a child who is beyond eligibility for child coverage.
        Although the annuity benefits of NIP coverage are the same (55 percent of covered pay), the cost (10 percent of your gross pay) is considerably higher than other elections.
        Unlike other SBP elections, NIP coverage can be cancelled any time.
        A retiree can only elect NIP coverage at retirement.”

        For your second question, I found this on the DFAS website: “If you receive Voluntary Separation Incentive (VSI) or Special Separation Bonus (SSB) and later qualify for retired or retainer pay, you will be required to repay the full gross VSI/SSB paid to date. You will receive a notification letter 90 days before your recoupment begins.
        Repayment will be made through monthly deductions from your retired pay at a rate of 40 percent of your monthly pay. Lump-sum repayments are not allowed, but you can request that we increase your monthly payment amount by sending us a signed written request.
        The Department of Veterans Affairs (VA) does not recoup VSI, but will recoup SSB. Additionally, VA compensation is deducted from VSI. If the VA is also recouping SSB payments, we will coordinate with them to avoid over-collection. We deduct your VA award from your gross retired pay and then withhold 40 percent of that amount for recoupment purposes. You may send us any documentation you have showing the amount the VA collected.”

        I have linked both sources in the above paragraphs. Please contact DFAS for more help with your questions.
        Thank you,
        Molly

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