The Survivor Benefit Plan (SBP) allows military retirees to protect their spouse (or other survivors) by insuring that a portion of their retired pay continues after their death, providing a guaranteed lifetime income.
The decision to enroll in this program is made prior to retirement and is irrevocable. And for married personnel, it’s a decision they cannot make alone. The spouse of a military retiree must consent to any protection level that is less than 100 percent. If the maximum election is made, the cost for spouse-only coverage is 6.5 percent of gross military retired pay.
Everyone’s situation is different. As you consider the SBP and alternatives, here are some things to keep in mind:
Possible Advantages of the SBP
- No evidence of insurability is required.
- No suicide or incontestability clauses.
- Benefits are tied to retired pay increases.
- SBP costs are not subject to federal income tax or state income tax in most states.*
- Survivor’s benefits are subject to federal estate taxes, but in most cases are eligible for the unlimited marital deduction.*
- Benefits are not subject to garnishment, lien, or other legal processes.
- Benefits may be payable for the lifetime of beneficiary.
Possible Disadvantages of the SBP
- No residual estate remains after death or marriage of designated beneficiary.
- Monthly benefit is subject to federal income tax as ordinary income.*
- Monthly benefit is subject to state income tax in some states.*
- Preferred risks subsidize uninsurable risks.
Additionally, SBP costs, benefits, and provisions are continuously subject to revision by legislative and administrative action.
*Appropriate professional tax counsel should be consulted regarding matters of taxation.
Did you enroll in the SBP? Did you consider alternatives? What went into your decision-making process?