US military benefits are designed to help servicemembers position themselves well financially after leaving the service. It’s important to note, however, that although these benefits may sustain your family right now, many of them are restricted to your lifetime. If you want your loved ones to be able to maintain the same standard of living after you pass, you need to complete additional planning now, even if the topic is an uncomfortable one to think about or discuss.
Begin by considering key survivors’ benefits, including those offered by the Department of Veterans Affairs (VA) as well as your retired pay from the Defense Finance and Accounting Service (DFAS). It also might be a good time to explore whether life insurance can supplement any gaps in coverage.
While your VA Disability benefit will terminate upon your death, certain beneficiaries may be entitled to ongoing benefits from the VA. One of the programs that offers lifetime payments for eligible dependents is Dependency and Indemnity Compensation (DIC). DIC is a monthly tax-free payment granted to surviving eligible dependents if their servicemember’s cause of death was service-connected. They may be eligible to receive additional funds for other circumstances as well, including if the Veteran had a Permanent and Total (P&T) disability rating for 10 years prior to death.
Regardless of rank or VA rating, DIC payment is a flat-rate monthly amount and is cost-of-living adjusted (COLA) annually based on the Social Security COLA rate. Eligible beneficiaries include surviving spouses, dependent children, or dependent parents under special circumstances. Another important aspect of DIC 10-year-rule is that if you have a 100% VA Disability Rating for 10 or more years preceding your death, your eligible beneficiaries qualify for DIC whether or not your death is service-connected. You can find more information and the current DIC rates on the VA website.
Another benefit administered by the VA is the Survivor Pension. Also a monthly tax-free benefit, this program is need-based for qualifying wartime Veterans’ survivors. This means the eligibility and benefit amount is contingent upon your survivors’ financial situation. Congress sets annual income and net worth limits that your surviving dependents must fall below to qualify. From there, the VA bridges the gap between your dependents’ countable income and the maximum allowable income, which is then dispersed as a monthly payment. Therefore, the amount varies by individual circumstances, and additional income sources can reduce or eliminate the payment received. While this is not an investment source, it can generate some financial stability for dependent families in challenging times.
Eligible survivors who qualify for both DIC and the VA Survivor Pension can only receive one of these entitlements. The VA will award whichever benefit is greater.
At retirement, you will be given the option to opt into the Survivor Benefit Plan, administered by DFAS. The SBP is designed to provide surviving dependents of military retirees with a lifetime annuity based on your retired pay, either the full gross amount or a reduced amount. If you opt into this plan, 6.5% of your monthly gross retired pay is deducted from your monthly DFAS payment while you are living. Upon your death, your survivors can receive a maximum of 55% of your elected amount of retired pay. The payments are adjusted for inflation annually and do not require any medical underwriting. It’s important to note that electing into or out of the program is a permanent decision, with limited circumstances that allow you to later suspend, opt in, or opt out of coverage. Furthermore, your premium payments will not be refunded or transferred to a different beneficiary if your beneficiary pre-deceases you. Eligible beneficiaries include spouses, former spouses, dependent children, or other individuals with insurable interest in certain situations.
Despite these valuable survivors’ benefits the VA and DFAS provide, they may not be sufficient to sustain your family’s desired quality of life. If you want to bridge the gap or ensure lifestyle continuity for your loved ones, consider life insurance.
Because life insurance is generally more affordable the younger and healthier you are, consider the coverage you have and apply for additional coverage, if necessary, before leaving service. You can determine how much life insurance you need by considering your family’s monthly expenses and responsibilities, and what amount would be required to live comfortably. Be sure to include outstanding mortgage, childcare, and education expenses, as well as any expected streams of income your survivors will have access to, such as previously mentioned military benefits, retirement accounts, social security, or other investments. Once you’ve identified the difference between monthly expenses and guaranteed income, you can choose the right life insurance coverage to bridge the gap.
Life insurance providers that serve the military community can help you identify coverage tailored to your family’s unique needs and circumstances. In addition to life insurance solutions, Armed Forces Mutual offers Survivor Assistance Services specifically designed to help families navigate the financial and administrative challenges that can arise after a loss. Because accurately assessing your survivors’ financial needs can be complex — and the decisions you make today can have a lasting impact — consider working with a qualified professional who has experience serving the military community.
A common thread among all these benefits and programs is that you need to be proactive to secure them. By planning ahead and ensuring the necessary applications and arrangements are in place, you can help protect your loved ones from financial uncertainty during an already difficult time.
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