News Flash! Your military retired pay stops when you die!
The Survivor Benefit Plan (SBP) is a form of life insurance for your military retired pay that provides a percent of your retired pay to your spouse or other designee after you die.
In a nutshell:
You pay premiums starting at retirement for up 30 years out of your pension to cover this insurance. The premiums are pre-tax and lower your tax bill. Additionally, the government subsidizes the payments, so it is even cheaper than at first glance. For spouses it provides from a minimum of $300 a month up to 55% of the member’s pension for life. Your spouse’s signature is required to not select SBP.
There is a different formula used for percentage if you entered military service before March 1st, 1990.
Post-1990 example: A service member elects for full coverage of his $2200 a month pension payment. This will cost $143 a month and if the service member passes away, his spouse will receive 55% of $2200 or $1200 per month.
Rules: Sign up upon retirement or within 1 year of retirement.
For the Spouse option: If your spouse remarries before 55, SBP stops, after 55 it does not. If your spouse dies before you, your SBP payments stop.
Former spouse rules are similar to spouse except you have to provide a letter from you and your spouse to DFAS explaining the reason for the election (divorce agreement, voluntary etc.).
Children can be covered provided they are under 18 or until their 22nd birthday if they are enrolled full-time in college, the benefit only goes to the children if the spouse is no longer eligible (deceased or remarried if under 55). The children’s plan is very inexpensive. The premium is based on the service member’s age and the youngest child’s age at the time of selection of SBP.
Is SBP worth it? This depends on your financial situation. May not be necessary if your spouse has a successful career, or you have significant investments/insurance to cover expenses after you pass. If the money from your pension is an afterthought you may not need it. Your SBP payments are pre-tax and the government discounts the cost compared to a privately purchased annuity.
Can I sign up after I retire? For one year with a couple exceptions such as getting married.
What if I change my mind? You can sign up as stated above, you can exit between the 2nd and 3rd year anniversary of receiving your first pension payment. No refunds on previous premiums paid.
What if I remarry? You can sign your new spouse up.
What about Exceptional Family Members? If your child is permanently disabled, he/she can get SBP for his/her entire life! This can be a double edged sword as their income from SBP may make them ineligible for services such as Medicaid and Supplemental Security Income (SSI) benefit. You may want to consult with a special needs trust qualified attorney to discuss which options make the most sense in your family situation.
There are a couple other options for SBP for business owners with partners and such that I won’t cover here. This article is intended to be a quick intro to SBP, not an exhaustive overview.
Official Defense Website on SBP: http://militarypay.defense.gov/survivor/sbp/index.html
Military.com discussion: http://www.military.com/benefits/survivor-benefits/sbp-child-coverage-cost-and-benefits.html
Good article on special needs/exceptional family member cases:
Disclaimer: I am not an expert on SBP, special needs trusts, or much of anything.