The Survivor Benefit Plan (SBP) is sponsored and subsidized by the Department of Defense. The plan provides up to 55 percent of a service member’s retired pay to an eligible beneficiary when the service member passes away. The plan provides automatic coverage at no cost to service members on active duty, and reserve component members who die from service-connected causes while performing inactive duty training. Additionally, those on active duty can purchase coverage when they retire, and reserve component members can choose coverage when they have twenty years of qualifying service for reserve retired pay.
What is the cost?
While service members are on active duty, they are provided with SBP coverage at no cost. However, once a service member has retired, a deduction is taken from their retirement pay each month to pay for SBP coverage. This can be up to, but not more than, 6.5 percent of gross retired pay.
Once a retiree has reached the age of 70 and made 360 payments on their plan, they are no longer required to pay for their coverage. In order to get an equal return on the investment into SBP, a beneficiary typically must receive payment for seven months out of every five years of paying SBP premiums.
If a retiree submits an invalid election at retirement, or does not submit one at all, they will be enrolled in SBP automatically. The cost of the coverage will be based on gross retired pay, and equal to the Spouse Only coverage option.
Who is eligible?
When applying for retirement, service members must complete a Data for Payment of Retired Personnel (DD2656) form. This form allows the service member to choose a type of beneficiary for the plan. There are several different categories of beneficiaries who are eligible for SBP benefits:
- Spouse only: This is the most common type of beneficiary. With this option, only the retiree’s spouse is covered, based on the retiree’s full retired pay. The plan cost is calculated at a maximum of 6.5 percent of the chosen level of coverage.
- Spouse and children: This option allows all children to be covered equally. Eligible children must be the retiree’s legal child; under the age of 18, or enrolled in an accredited college or university; not married. Children in college are eligible until they leave school, or until age 22. Children who are disabled or incapacitated are also eligible. Adding children to the SBP will add to the cost; this additional cost depends on the ages of the retiree, the spouse, and the youngest child.
- Former spouse: If a retiree has a former spouse at the time they become eligible to participate in SBP, the retiree may elect former spouse coverage.
- Children only: Retirees can choose not to cover their spouse, and to only cover children. The cost for this option depends on the age of the retiree and the youngest child.
- Natural Interest Person (NIP): Retirees who do not have other eligible dependents can choose to cover an individual such as a sibling, or child who is not otherwise eligible for coverage. The annuity benefits are still 55 percent of covered pay, but the cost is higher than other options (10 percent of gross pay).
- No Beneficiary: Retirees are not required to choose a survivor benefit plan at the time of retirement, but they must state they do not have beneficiaries instead of simply not choosing a plan.
- Decline: Retirees may choose to not participate in SBP, but must provide their spouse’s notarized signature if they decline to cover their spouse.
What benefits are provided?
The SBP allows retirees to ensure that their dependents can receive an inflation-adjusted monthly income after the retiree’s death. After retiring, a service member pays monthly premiums for SBP coverage. These premiums are paid from gross retired pay, and do not count as income; this allows for fewer out-of-pocket costs for the plan. Premiums are also funded in part by the government; government contribution differs by situation. While the maximum SBP annuity is based on 55 percent of a service member’s retired pay, retirees can choose a smaller amount.
SBP is similar to life insurance, because it protects survivors against losing their financial security when a retired service member dies. While some insurance plans pay a fixed benefit that may run out before the survivor dies, SBP protects survivors from potentially outliving the benefits they receive from the plan through Cost of Living Adjustments.
There are multiple advantages to purchasing a survivor benefit plan. These include:
- Leaving a guaranteed income to beneficiaries
- Coverage and cost of SBP benefits will not be cancelled or revoked due to age or illness; health and age are not considered liabilities and will not impact the cost of the SBP
- Survivor benefits from SBPs are not affected by Social Security benefits
- SBP annuities are protected against inflation; annuities increase annually with a Cost of Living Adjustment
- SBP benefits can be paid for with a pre-tax payroll deduction
Receiving SBP payments
When a service member passes away, their next of kin must notify the Defense Finance and Accounting Service (DFAS) in order to begin the SBP annuity. Usually, it takes between three to four months after DFAS is notified for SBP payments to begin; these payments are retroactive to the date of the service member’s death.
If a retiree wants to discontinue their SBP coverage, it can only be done during the second year after retirement. After this time period, retirees can only “disenroll” from SBP through the following:
- If the selected beneficiary passes away
- If the retiree and their spouse get divorced
- If the retiree has 100 percent service-connected disability for ten continuous years, or at least five years from the date of service separation
While it can provide assistance for survivors, SBP is not a complete estate plan. Retirees should consider other investments and insurance plans to meet additional needs that are beyond the scope of what SBP provides.
Heather Maxey works at a non-profit that addresses military ineligibility. She is an Army spouse, and met her husband while working as a Health Educator at Fort Bragg.
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