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Military Benefits

What is the Survivor Benefit Plan (SBP) and is it the right option for you?

2015-09-17

There is some confusion surrounding the Survivor Benefit Plan (SBP). SBP is a form of financial protection offered by the Department of Defense and was designed to give survivors coverage for lost military or retirement pay when a servicemember dies. Under the SBP, also referred to as a “survivor annuity plan,” a military retiree’s spouse (and/or eligible dependents) can receive up to 55% of the military pension (paid monthly for the life of the beneficiary) upon the death of the retiree. Unfortunately, SBP does not simply kick in once a servicemember dies. Generally, a servicemember must decide whether or not to enroll in the SBP at the time of military retirement.

There are several basic options with SBP: spouse-only, spouse and child, former spouse, child-only, and natural person of interest. Each election option has differing costs. The premium for the spouse-only option (for 55% of the pension) is 6.5% of the amount of the monthly pension selected for SBP. This premium is pre-tax. If SBP is not selected, the retiree’s spouse must agree and provide a notarized signature.

The protection provided by SBP is comparable to a permanent life insurance policy, with distinct advantages and disadvantages. One advantage is that the benefit is adjusted for inflation, while the death benefit on most life insurance policies is not. Another advantage of SBP is there is no medical underwriting required. Permanent life insurance policies typically require medical qualification on the insured. As the insured ages, he or she will have increased premiums to pay and may not qualify for stringent underwriting requirements. The growth of the cash value of a permanent life insurance policy is dependent on the investment management of the insurance carrier, however this management can lead to better growth potential than SBP.

More details about SBP can be found at the DFAS website: http://www.dfas.mil/retiredmilitary/provide/sbp.html