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Table of Contents
- What is the Survivor Benefit Plan
- SBP Cost & Payouts
- Fully Paid SBP Policy
- SBP Eligibility
- Survivor Benefit Plan Enrollment
- Enrolling in the SBP After Retirement
- Changing or Updating Your SBP Beneficiary Designations
- Advantages & Disadvantages of the SBP
- Situations When the SBP Might Be Appropriate
- Situations When SBP Might Not Be Appropriate
- Life Expectancy, Age, and Other Factors
- Dive Deeper in the Podcast: Survivor Benefit Plan Case Studies
- Why you would choose term life insurance over the SBP
- Why you would choose term life insurance over the SBP
- Should You Buy into the Survivor Benefit Plan?
The Survivor Benefit Plan aims to provide a continued source of income for survivors of military retirees. You can buy into the Survivor Benefit Plan (SBP) if you’re a military retiree. It will lead your spouse or another eligible survivor to receive 55% of the retiree’s retirement pay after you pass away.
This can ensure that your loved ones continue to receive a stable income. But you’re probably asking, “Is this right for me and my family?”
Let’s break down the SBP, its pros and cons, and the options you may want to consider when planning your life after death.
Details on the Podcast Above
About our guest: Today’s podcast guest and resident expert is Forrest Baumhover, who is the author of the book, Military In Transition’s Guide to the Survivor Benefit Plan, which is available at Amazon.com and other locations.
Forrest is a retired Navy Officer and a fee-only financial advisor. This puts the estate planning, life insurance, and similar topics right in his powerhouse. You can visit his financial planning site at Westchase Financial Planning.
Buy Military In Transition’s Guide to the Survivor Benefit Plan on Amazon.com, on sale now.
What is the Survivor Benefit Plan
Basically, the Survivor Benefit Plan is a form of life insurance and annuity. Instead of paying out a lump sum to the beneficiary like most life insurance policies, it pays out a portion (55%) of the member’s retirement pay each month until the survivor either passes away, or is no longer eligible to receive the payments.
It was designed to provide basic support if the servicemember passes before the surviving spouse. The SBP can greatly impact the quality of life for a surviving spouse, so it’s important to understand the cost, payout, and other factors you should consider during the decision-making process.
SBP Cost & Payouts
When you participate in the Survivor Benefit Plan, you’ll pay 6.5% of your retirement pay. 6.5% is considered full coverage for dependents who are not a “Natural Interest Person (NIP).”
Some instances allow you to do a “reduced” pay option. In a reduced pay situation, you would choose how much of your retirement pay would be considered and pay 6.5% of that amount.
If you participate in the SBP, the annuity beneficiary will receive 55% of your monthly payment each month following your passing. Note: They will receive 55% of your base military retirement pay, not any possibly additional payments that may include VA disability compensation, concurrent receipt, or any other disability offsets.
Also, the amount your beneficiary receives is taxed federally. However, some states don’t tax military retirement pay, so it’s essential to consider that before enrolling in this plan.
Calculating SBP Costs and Payouts
Let’s breakdown If you receive $2,000 per month in retirement pay, full coverage would be 6.5% of the gross amount.
$2,000 (Gross Pay) x .065 (6.5% in SBP payment) = $130 in monthly payments
However, you can choose a “reduced” coverage option. In that instance, you would pick how much of your retirement pay you want your SBP payment to be based off of. Let’s say instead of the full amount of $2,000 dollars, you elect to only pay SBP on $1,300 of it. Then you would pay 6.5% off of that chosen amount.
$1,300 (Selected Reduced Amount from Gross Pay) x .065 (6.5% in SBP payment) = $84.50 in monthly payments
Fully Paid SBP Policy
There is a provision in the SBP plan that allows for servicemembers to be fully paid on the policy once they have paid into the program for a certain amount of time. If you retire and continue to pay SBP premiums, after 360 months and you reach the age of 70, you are considered ‘paid up’ and there is no additional cost to you. You are covered for the rest of your life. You will not owe additional SBP premiums and your survivors will receive the full payout when you pass away.
Be sure to read up on this provision, as it may affect your decision to buy into the SBP or purchase term life insurance instead. (The podcast on this page breaks this particular subject down as well)
SBP Eligibility
When you retire, the SBP only allows you to insure specific individuals. This is typically limited to spouses, former spouses, children, or, if a spouse or child isn’t eligible, someone with an insurable interest, often called a Natural Interest Person (NIP).
The SBP will only pay out to children until they reach a certain age, but they must meet these requirements:
- Your legal children
- They’re under the age of 18
- Their eligibility extends to 22 years old as long as they are enrolled in an accredited college or university
- Unmarried
Note: Do not select your child as a SBP beneficiary if you think they will receive SBP payments for the rest of their lives.
- There are some expectations for children if they’re older than 18, but live with conditions that require medical assistance or a full-time caretaker.
- Eligible beneficiaries include:
- Spouse
- Spouse & Children
- Former Spouse
- Children Only
- Natural Interest Person (NIP)—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. The annuity benefit is the same; however, the cost is 10% of your gross pay (instead of 6.5%). A retiree can only elect NIP coverage at retirement.
If you want to add a beneficiary after you’ve retired, you can do so, but it must happen no later than one year following the marriage (for a spouse) or date of birth/adoption (for a child). This is important, so I will mention it more throughout the article.
Survivor Benefit Plan Enrollment
As you approach your retirement, it’s important to start reviewing the option for SBP. Once you’ve decided to enroll, you’ll need the DD Form 2656: Data for Payment of Retired Personnel. The DD 2656 offers brief instructions regarding election options and requirements.
What the DD2656 form needs:
- You and your beneficiary must sign the form before your retirement date
- Your witness must sign the document on the same date as you
- If your spouse’s signature is needed, it must be either on or after the date of your signature
- The notary witnessing the spouse’s signature must also sign on the same date
Enrolling in the SBP After Retirement
Enrolling in the Survivor Benefit Plan after retirement may be possible, but it’s not always easy or guaranteed. Some service members elect not to participate in the SBP because they have no eligible beneficiaries when they retire from the military. This could later change if the retiree marries or has a child.
Note: Retirees have one year from the date of their survivor’s initial eligibility to declare them as beneficiaries (either one year from the date of the wedding or the birth or adoption of the child). This needs to be done in writing through DFAS.
Remember: If you have eligible beneficiaries at the time of your retirement and elect not to have them covered, you will not be able to change that election in the future. You need to get this right the first time!
Changing or Updating Your SBP Beneficiary Designations
It may be possible to change beneficiaries in limited circumstances. For example, some retired servicemembers may divorce or remarry, or they may have a child after retiring. It is essential to notify DFAS as soon as possible if you need to change a beneficiary. Be prepared to provide legal documents such as marriage certificates, divorce decrees, or birth certificates.
You can change or update your SBP beneficiary designation by completing DD Form 2656-6, Survivor Benefit Plan Election Change Certificate.
Advantages & Disadvantages of the SBP
| Pros | Cons |
|---|---|
| Financial security: Monthly payments for loved ones. Payments increase with Cost of Living COLA adjustments each year | Monthly Cost: 6.5% out of each month’s payments can add up |
| No Qualification Requirements: You don’t have to qualify for the SBP like you would have to do for a life insurance policy | Payouts: Some life insurance policies pay out lump sums, while the SBP pays out in monthly payments |
Pros
The primary advantage of the Survivor Benefit Plan is the peace of mind that comes with a guaranteed monthly income. The SBP provides an ongoing monthly payment for the life of the surviving spouse or until the beneficiary becomes ineligible (children reach the age of majority). There is added peace of mind because the annuity is adjusted for inflation with a Cost of Living Adjustment (COLA), like military retirement pay.
Another advantage of the Survivor Benefit Plan is that one does not have to qualify for it, like one may have to do to purchase a life insurance policy. Retirees are eligible to choose the SBP upon retirement, regardless of their age, health, presence of disabilities, physical condition, life expectancy, and other factors.
Most people need to qualify for a life insurance policy unless they convert their SGLI policy into a VGLI policy upon retirement. However, VGLI premiums can become very expensive with age. The SBP uses fixed rate premiums. They will increase as COLA increases retirement pay, but they remain a fixed percentage, usually 6.5% of the monthly retirement pay.
Cons
The Survivor Benefit Plan has a few disadvantages. However, the primary disadvantage for some retirees is cost.
6.5% doesn’t sound like a lot of money for its coverage, but some retirees may find they can save money by purchasing a term life insurance policy with a large payout.
However, there are differences in terms of how term-life insurance plans are paid and how the SBP pays their policies. Term life insurance generally provides a lump sum of money, while the Survivor Benefit Plan provides an ongoing monthly payment. So, a term-life beneficiary must manage money well to realize the potential monthly cost savings and potentially larger payout.
Situations When the SBP Might Be Appropriate
There may be times when signing up for the SBP is the best decision for your or your family’s future. A lot of those situations tend to be rooted in certainty for the future like:
- You find security in having a lifetime annuity for the survivor
- You want to insure against an uncertain future
- You are male and your spouse has a longer life-expectancy, or there is a large age gap between the retiree and the recipient
- You have a special needs child(ren). SBP Benefits can be paid to an incapacitated child over the age of 18 under certain circumstances
Other reasons often include the hurdles that you may find when trying to get a life insurance policy, such as:
- You’re uninsurable or you have a medical rating that would raise your life insurance premiums.
- You are in poor health or have poor health habits (smoking, excessive drinking, obesity, chronic illness, etc.)
- Your age or situation makes buying a term life insurance policy prohibitively expensive
Situations When SBP Might Not Be Appropriate
As previously mentioned, not everyone should buy into the Survivor Benefit Plan. In some situations, the cost is more expensive than life insurance, or the individuals simply don’t need to insure against the loss of the income. Here are some of the situations when you may consider not buying into the SBP:
- You have a longer life expectancy than your spouse and have no other dependents who could qualify for the benefit.
- You are young, insurable, and healthy and can qualify for an inexpensive term-life insurance policy.
- You are financially independent and have accumulated the necessary assets to support your retirement needs independent of the funds that would come from SBP.
- Some mil-to-mil retired couples may find they don’t need to take out SBP policies on their retirement pay because they each have a respectable pension they can use to fund their retirement.
For a more in-depth breakdown of term-life insurance and the SBP, we have a side-by-side deep dive on the two programs.
Life Expectancy, Age, and Other Factors
There are many other factors to consider when electing to buy into the Survivor Benefit Plan, choosing life insurance, or electing to purchase either of these. The major factors one needs to consider include:
- Age,
- Gender,
- Life expectancy of the retiree,
- Life expectancy of the beneficiary,
- Age difference between the two parties,
- Health factors, especially those who have a known health conditions, a low family life expectancy, or a high risk from other factors.
- And more.
These topics are obviously specific to the person considering buying into the Survivor Benefit Plan. But in general, people are living longer now than in previous decades. And in general, women live longer than men. The factors should play an important role in your decision.
You can visit the DoD Office of the Actuary website, which annually publishes a calculator that helps you analyze your specific information and compare life insurance and the Survivor Benefit Plan.
Dive Deeper in the Podcast: Survivor Benefit Plan Case Studies
In the podcast, Forrest discusses two very difference situations with the Survivor Benefit Plan, one in which the member decided against the SBP and instead purchases a term life insurance policy, and one in which the retiree chose the SBP.
Why you would choose term life insurance over the SBP
In this example, Forrest uses his own situation. He was able to save a substantial amount of money each month by purchasing a large term life insurance policy. This would give him enough time to establish his post-military career and continue working toward financial freedom. Should he unexpectedly die young, the term life insurance policy would be enough to provide for his wife and children? If he reaches the end of the term life policy and is still living, he should be financially set and not need the insurance policy. Let’s hope this works exactly as planned!
For more on this situation, please check out Forrest’s article: Why You Should Strongly Consider Not Participating in the Survivor Benefit Plan.
Why you would choose term life insurance over the SBP
Forrest gave another example of his grandfather, who chose the SBP. He had a longer military career and retired at an older age than that at which Forrest will retire. He also didn’t go on to have a second career after leaving the military. Unfortunately, he passed away well before his spouse. But because they had no debt or other large financial needs, Forrest’s grandmother was able to live well on the Survivor Benefit Plan payments and social security benefits. Forrest gives more details on the situation, and the story is worth listening to if you have the time.
Should You Buy into the Survivor Benefit Plan?
If you’ve read this far, you’ve probably come to the same realization that I have: there is no one-size-fits-all answer to the Survivor Benefit Plan.
For many people, the answer is clear cut – the SBP is the best deal going, and they should absolutely buy into it.
There are others who are in a similar position as Forrest, where a large term life policy might be a more prudent option.
My recommendation is to buy Forrest’s book. It costs about the same as a large coffee and can help you make a decision that will have a major impact on your life – and that of your survivors. This isn’t a situation to take lightly, so it’s a good idea to seek out as much information as possible before making the decision.
Buy the book, Military In Transition’s Guide to the Survivor Benefit Plan on Amazon.com, on sale now.
Additional Resources:
- Office of the Actuary: The Defense Department’s online resource, based upon actuarial data. This allows retirees to make ‘apples-to-apples’ comparison for SBP vs. term life insurance.
- Active Duty Military Survivor’s Benefits. (this is different from the Survivor Benefit Plan discussed in this article; this reference is for those who are on active duty and are looking for additional information on this topic).
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vicki jessee says
Hi. My dad passed away 11 years ago. My mom is now 97 years old, and she just recently heard about the survivor’s benefit. She applied for it right away but was told she doesn’t qualify for the benefit because the 6-year deadline in place for collecting the survivor’s benefit had come and gone. In other words, too much time has passed to receive it. I wanted to see if there was any way she can appeal this. She has many medical and caregiver expenses and is living month to month and this extra money would be a great help to her if she could begin receiving it. Thank you for your help.
Ryan Guina says
Vicki, I’m not sure. I recommend contacting DFAS to see if this is possible. You may need to find legal representation to assist you if the appeals process is difficult. I wish you and your family the best!
David Pabst says
Hello Ryan. Great read.
I served 1984-2016 active and reserve. I was married for 15 years and then divorced. Her and I filled out the DD Form 2656-1 Survivor Benefit Plan but her attorney sent it to DFAS 1 and 1/2 years after the divorce was final in 2007. In the instructions on the back of the form it reads: “Attach a certified copy of the divorce decree, amendment, or other documentation as described in Items 3, 4, and 5. If not received by DFAS within the first year following the date of divorce, the election will be invalid.” I have since remarried and would not like to let my ex-wife receive the SBP if the form was not valid by sending it late to DFAS. I also have read if your prior spouse remarries prior to age 55, she would not be subject to receive the SBP. Is this true? thank you.
Ryan Guina says
Hello David, This is a question I recommend taking to your attorney. He or she will be able to give you the best answer for your situation. Best wishes!
Ed Collier says
Ryan, I stumbled upon your website/podcast and wanted to tell you Thank-you for doing such a great job! You asked alot of very important questions and laid the groundwork for the interview. Thanks and keep up the good work, I’ll be subscribing to your podcast!
Ryan Guina says
Thank you for the kind words, Ed!
Gloria Bryant says
I am from SC a veteran and my ex is a veteran as well. We divorced in the 90’s he was order to pay child support and I was to receive 50% of his retirement. He was also order to keep up SBP (insurance survivor benefits). Well he stopped paying child support almost with a year or two while the children were young in and in school. I basically used the money I received as alimony for child support because I couldn’t financially take him back to court for this. My children are in their 30’s and my question now is ….How can I even find out if he kept up the insurance since he stopped the child support and Tricare insurance on the children. Can I contact the military….what happens if he dies and the money that I had been receiving stops?????
Ryan Guina says
Hello Gloria,
I’m sorry to hear about this situation. I’m not sure the answers to these questions. My recommendation would be to contact the Defense Finance and Accounting Service (DFAS), which handles military pay. They may be able to provide this information to you if you provide them with a copy of the court order.
If not, they should be able to advise you on what to do next. For example, they may require you to work with an attorney or provide some other evidence (again, I don’t have professional legal training, so I don’t know the answer). But this should get you pointed in the right direction.
I wish you the best, and thank you for your service!
Laurie says
Ryan,
My first husband was KIA in Viet Nam in 1969. I collected DIC until I married another military member. I was told at that time that if the second marriage ended that I could resume collecting DIC after death or divorce.
The law concerning SBP has changed several times during the last 45 years. At one time SBP as offset by Social Security. When that rule was changed it cost over $35K to buy into SBP. Later they said that a widow who remarried after age 55 could resume receiving DIC.
My current husband, a C-135 pilot, receives a partial VA disability because he suffers from numerous effects of Agent Orange. We have not bought into SBP. What is my status if he should predecease me?
Ryan Guina says
Hello Laurie, I don’t have access to the laws as they were formerly written, and I’m not sure if they would apply to you now that your situation has changed. My belief is that you would only be covered under the current Survivor Benefit Plan laws. As you haven’t bought into the SBP, I can’t say if you would be eligible for any benefits under this program should your husband predecease you. There may be other benefits such as Social Security Survivors Benefits or life insurance if you have a policy.
The Survivor Benefit Plan has previously offered open seasons, in which members who were not participating in the plan were able to buy into it. However, there is no way to know if they will offer this again, and if so, when it would be. In addition, members would need to pay the full amount of the premiums they would have paid had they been participating in the plan the entire time they were eligible. So this can be a very expensive proposition.
At this point, I don’t have a lot of firm answers for you. Your best course of action may be to find a consultant who specializes in these programs to help you better understand your options. I don’t have any contacts in this space, so I would recommend speaking with a veterans benefits counselor at a service organization such as the DAV, AMVETS, or a similar organization. They should be able to help you or point you toward someone who can.