Understanding Your Survivors Benefit Plan (SBP) Coverage

By Staff Attorney
The Gasper Law Group, PLLC

The Survivors Benefit Plan (SBP) provides eligible beneficiaries with a benefit called an “annuity.” An annuity is a monthly payment distributed over the beneficiary’s lifetime. The amount of the payment is at the discretion of the policy-holder, but it must equal a specific percentage of the retirement benefit. Although this plan is designed specifically for military service members, enrollment is not automatic, and it may come with upfront costs. Consider the following highlights of SBP as you decide whether or not this plan is right for your family.

  • Eligible beneficiaries include your spouse, children, former spouse, or a Natural Interest Person (NIP).

An eligible spouse is automatically covered based on full retired pay, with costs capped at 6.5 percent of your gross retired pay. Election for anything less than full coverage must be accompanied by the spouse’s notarized signature to validate the decision. All children are covered in equal shares under the Spouse and Children option, and children may only be added if they were born or adopted after the initial plan election.

  • SBP benefits are inflation indexed, and cost is not affected by age or medical condition.

SBP annuities are revisited at the end of every year and adjusted according to the Cost of Living and the Consumer Price Index. Unlike most private life insurance policies, SBP coverage cannot be cancelled or revoked due to age or illness. Further, the cost of the program is not affected by your age or health. Survivor benefits are also unaffected by Social Security benefits, meaning you and your spouse will not be penalized for receiving other forms of assistance.

  • You can pay for SBP benefits with a pre-tax payroll deduction.

SBP premiums are automatically deducted from your gross pay prior to federal income tax deductions. As a result, most retirees benefit from a decrease to their total taxable income.

  • The cost of SBP doesn’t hit until later.

Although it depends on the coverage level you choose, SBP coverage won’t cost you a cent while you’re in active service. However, once you officially retire, your retirement pay will be hit with a monthly deduction that goes directly toward your SBP coverage. However, the amount that can be deducted is capped at 6.5 percent of your gross retired pay.

The Gasper Law Group is proud to serve the men and women who serve our country. If you’re looking for professional legal advice regarding SBP or any other aspect of financial planning, call for a free consultation today at 719.227.7779.