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.

Additional Information

The Survivor’s Benefit Plan (SBP) is an insurance plan that will pay monthly payments to a surviving spouse or other named beneficiary upon the death of the insured. These plans are designed to protect the surviving spouse or other beneficiary from financial hardship associated with the loss of income when the insured dies unexpectedly as well as the effect of inflation on fixed incomes.

There are several options available and the service member should consider each in light of their specific needs and expectations. The first option is spouse only. Under this option, the surviving spouse must be a widow or widower to receive the benefit. The widow or widower must have been married to the insured at the time of enrollment or for at least one year prior to insured’s death.

The second option is Spouse (or former spouse) and child. Here coverage is expanded to cover an eligible child if there is no surviving spouse or if the surviving spouse dies or becomes ineligible. The most common way a surviving spouse would become ineligible is when the former spouse remarries before turning 55 years old. Under this option, the payments will be made to the eligible child or children.

A third option is child only. Here children remain eligible beneficiaries until age 18 (or 22 if full-time, unmarried student). If a child is mentally or physically unable to support themselves, they can continue to receive the benefit as long as the incapacity exists. In addition, a new law allows the payments to go into a Special Needs Trust (SNT). This allows the disabled child to continue to receive needs-based government benefits while still being able to use the money in the trust for his or her support.

The final two options are for a former spouse or for a person with a “Natural Insurable Interest.” The former spouse option is pretty straight-forward. The insured can elect coverage for a former spouse as long as the former spouse was married to the insured at the time the member became eligible or for at least one year. NOTE: A current spouse cannot receive a benefit if a former spouse is selected.

The option of a Person with a Natural Insurable Interest is typically used when a member is unmarried and has no dependent children. Beneficiaries typically include parents, siblings and other relatives. In cases where beneficiaries are non-family, the plan may require the member submit proof of financial expectation. These instances are rare and are used in unusual circumstances where the member has no family member and has someone unrelated to them that needs protection. A common example of this would be a business partner or joint property owner.

Finally, SBP is protected from inflation. Each year when the member gets a Cost-of-Living adjustment (commonly known as COLA) the base amount, as well as the premium amount, is adjusted for inflation. The increase is set based upon the previous year’s Consumer Price Index and have historically averaged about 2.5 percent annually.

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, contact us for a free consultation today at 719.227.7779.