When a military retiree dies their retirement pay stops. This means that the surviving spouse will be left without a substantial income source. If you are a retiree you need to give serious thought to how you can protect your spouse from the hardships caused by the loss of your retirement pay.
One option available to you is the Survivor Benefit Plan (SBP). The SBP is an insurance plan that will pay your surviving spouse a monthly payment (annuity) to help make up for the loss of your retirement income. The plan is designed to protect your survivors against the risks of:
- Inflation
- Your early death
- Your survivor outliving the benefits
How SBP Works
At retirement, full basic SBP for spouse and children will take effect automatically if you make no other valid election. You can’t reduce or decline the SBP without your spouse’s written consent. This means you will have to have your spouses input in the decision and their signature is required.
You may choose coverage for a former spouse, children, or you may be able to cover an “insurable interest” (such as, a business partner or parent).
If you elect to participate in the SBP you pay a monthly premium. The premium is based on how much SBP coverage you select.
Your SBP coverage can be any amount from full coverage down to as little as $300 a month. If you elect higher SBP payments on your death your monthly payments while you are alive will be higher.
The highest your SBP can be is 55 percent of your retirement pay.
There are several categories of beneficiaries that you can have the SBP for. The categories are:
Child Only
This option pays the SBP only to your children regardless of whether you are married or not. Your children will get the SBP until they turn 18 or age 22 if a full-time, unmarried student.
Children mentally or physically incapable of self-support remain eligible, while unmarried, for as long as the incapacitation exists.
Spouse Only
The surviving spouse be a widow or widower who was married to you when you enrolled. If you marry later, you can add your spouse, but they must be married to you for at least one year prior to your death to get any benefits.
Spouse (or Former Spouse) and Child
You can also elect to cover your children under this category of coverage. This coverage pays to your spouse while they are alive. If they die before you it will pay to your children after your death.
Disabled Dependent
You can also contribute your SBP payments to a Special Needs Trust (SNT) to allow a disabled dependent to continue receiving federal disability payments.
A SNT is a trust designated for beneficiaries who are disabled, either physically or mentally. It is written so the beneficiary can enjoy the use of property that is held in the trust for his or her benefit, while at the same time allowing the beneficiary to receive essential needs-based government benefits. Talk to a financial advisor for more information.
Former Spouse
If you have a former spouse when signing up for the SBP you can elect coverage for them.
If you have more than one former spouse, you can only choose one. If you add a former spouse, your current spouse doesn’t get anything.
Person with a Natural Insurable Interest
If you don’t have a spouse or kids you can elect SBP coverage for a person with a natura insurable interest in the member. This usually includes business partners.
The Department of Defense defines a natural insurable interest as “a natural person with an insurable interest who has a reasonable and lawful expectation of financial benefit from the continued life of the participating member, or any individual having a reasonable and lawful basis, founded upon the relation of parties to each other, either financial or of blood or affinity, to expect some benefit or advantage from the continuance of the life of the retired member.” If the election is for a person who is more nearly related than a cousin, no proof of financial expectation is required.
Again, talk to a financial advisor.
Inflation Protection
Like your retirement pay the SBP annuity is protected from inflation. Each year when retired pay gets a Cost-of-Living Adjustment (COLA) so does the SBP.
Remember, since the SBP coverage amount goes up with COLA, your premiums will go up too.
