5 Factors You Should Consider When Evaluating the Survivor Benefit Plan

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The Survivor Benefit Plan (SBP) is one one of the most debated topics for transitioning service members. Military in Transition's Guide to the Survivor Benefit PlanIt is a form of life insurance that provides cost of living adjusted income, to eligible dependents of retirees who elect to participate in the program.

While most of us feel as if we’ll live forever, the fact remains that our lives can end rather suddenly. Unfortunately, once this happens, our retirement pay stops. Without proper planning, this could potentially leave our dependents unprepared without the financial support the SBP provides.

To clarify the facts about the SBP, we would like to welcome Forrest Baumhover, the author of Military In Transition’s Guide to the Survivor Benefit Plan. To help separate the fact, from fiction, Forrest provides a comprehensive resource to assist transitioning service members with the SBP. This book is highly recommended; a must read for anyone considering leaving the military.

This book is highly recommended; a must read for anyone considering leaving the military.

Everyone planning a military retirement has a very important decision:  “Should I take the Survivor Benefit Plan or not?”  As I’ve said previously, this is a very personal decision, and should not be taken lightly.  While the best decision might depend upon the circumstances, it’s important to note the factors that might help inform your decision.  Below are five of those factors, and the reasons why they are important.

What sex are you and your spouse?

A generation ago, we used to take this for granted, since the military workforce was almost exclusively male.  However, since the establishment of an all-volunteer military, the percentage of enlisted women has grown seven-fold, from 2% to 14%.  The percentage of officers has quadrupled, from 4% to 16%.

Why is this important?  Think about this:  if the Survivor Benefit Plan was originally designed for female spouses who outlived their military retiree husbands, then how much benefit will a female retiree’s husband receive if she outlives him?  Zero.  If the retiree is a female, odds are that she will outlive her husband by 5 years.  Since the Survivor Benefit Plan will not pay out if the member outlives their spouse, it doesn’t make sense in a lot of situations if you’re a woman.

What is your age, and what is your spouse’s age?

The answer to this question could either nullify or bolster the rationale for choosing SBP for several reasons.

First, there’s age difference.  The age difference plays a role in determining how many years the SBP payout might last.  Today, it’s feasible for your spouse to receive SBP payouts for 30 or 40 years after your death.  Or, they could receive nothing if you’re the person who outlives them.

Second, there’s the impact that age has on insurability.  An older servicemember is likely to qualify for less insurance, more expensive insurance, or not be insurable at all.  Being eligible for less insurance makes a more compelling argument in favor of SBP.

How insurable are you?

Other than age, are there other factors that might interfere with an insurance company underwriting a policy?  The reason you should know this is because the more expensive life insurance is, the more compelling SBP becomes.

The following factors might play a role in determining how much insurance you’d qualify for, and how much you’ll pay in premiums:

  1. Disability.  If you have certain service-related health concerns that result in a VA disability claim, they may have an adverse impact on your life insurance premiums.
  2. Sex.  Sorry guys…since women generally live longer than men, they’re generally going to pay less for life insurance.
  3. Smoking status.  Smokers are high risk and pay more for life insurance.  As part of your life insurance physical, you can expect to be tested for nicotine in your system.  If you smoke, the life insurance company will factor that into your premiums.
  4. Health status.  We’re at the beginning of what will become a bow-wave of social pressure to improve health.  As insurance companies find ways to incentivize healthy habits (such as health insurance companies providing a discount for gym memberships), we’ll soon see penalties for bad health behavior, such as obesity.  If you’ve been meaning to lose those 20 pounds, here’s an additional incentive to do so.
  5. Medical history.  This might not do anything with your VA disability claim.  However, insurance companies will research hospitalizations and prescription history to see if there are any red flags.
  6. Family history.  If you have a family history of certain diseases or conditions, such as cancer, heart disease, or strokes, this could impact your insurability.  It’s nothing you can control, but something that you should keep in mind.

Are you more concerned about your spouse dealing with ‘middle-age’ finances, or outliving his or her money?

My grandparents served and retired in a time where:

  • College was a lot less expensive
  • People didn’t live as long after their military retirement
  • Consumer debt wasn’t as pervasive in our lives
  • Children grew up and left home
  • Eldercare was a non-issue

Now, we’re in an age where:

  • It’s more expensive to raise kids
  • It’s a LOT more expensive for them to go to college
  • People live for 30+ years after their military retirement
  • Children come back home
  • People have credit card, mortgage, and student loan debt into their 50s and 60s
  • We’re taking care of our parents and grandparents

My grandfather never had a second career after the military.  However, it’s more likely than not that if you retire from the military today, you’ll take on a second career.  This second career will help bolster your finances, pay off your mortgage, build your retirement accounts, and get your kids off to college.  Hopefully.  What happens if you die before that second career achieves those goals?  Can your spouse make ends meet on your SBP benefits alone especially if you’re no longer around?

If you’re not sure, you might want to take a look at your situation to see if you’re better off with SBP or a term life insurance policy.

Whose income is more important to protect?

If you’re a dual income couple, you’ll want to make sure you adequately address both spouses.  If your spouse has a lucrative job, you want to make sure that you cover both incomes.  This could include a life insurance policy on your spouse and SBP, or it could mean life insurance policies on both of you.

At the end of the day, your decision to take SBP should be the decision that helps you sleep at night.  However, if you aren’t sure where to begin, Military In Transition’s Guide to the Survivor Benefit Plan is a good place to start.

Forrest Baumhover is a Certified Financial Planner™ and financial planner with Lawrence Financial Planning, a fee-only financial services firm. As a retired naval officer, Forrest helps veterans, transitioning servicemembers and their families address the financial challenges of post-military life so they can achieve financial independence and spend more time doing the things they love.

  1. We found that a little forward planning went a long way for us. In the year that my Active Army spouse was preparing for retirement, we did some comparison shopping and found that a 20yr term policy with USAA was 1/10th the cost of the SBP. I’m a working dependent with my own pension and TSP savings, so didn’t need as much coverage as a SAHSpouse might need. We locked in our rate before he retired, and before the disability rating had been calculated. Now that he is at 80%, I doubt we would get as good a deal. Highly recommend that soon-to-be retirees take a look at the commercial options available outside of the military offerings. Grateful that its available for folks who don’t have a better option, but its not the best deal.

  2. Great post. One thing to consider adding is SBP and special need children.

  3. Fixing SPB for the 21st century.

    If the SBP is topic of the day. Some common sense ideas to provide it the flexibility needed to ensure solvency and relevancy post retirement reform.

    -Provide on and off ramps at various points in the 40 or so years of possible military retirement life expectancy . In other words ‘open seasons” where one is able to modify, change, adjust SPB as lifestyle and life events permits.

    -Expand the concept of ‘portability’ beyond the traditional primary spouse to more closely match options currently in place which is offered in the 401K/IRA industry.

    -If they chose, allow soon to be or close to retirement military to use a potential lump-sum option to pre-buy SBP credits and detach such vested credits from the monthly 6.5% assessment.

    -Finally you need to expand the participation rate in a day and age of demographics where a much smaller end strength force, than decades prior, is forced through high premiums to continue to support payments to an aging Boomer generation. You need to sweeten the pot through incentives and flexibility. Much like a whole life insurance policy provide an option for cash settlement or payout to the living veteran under certain conditions where he or she may not need SBP but have paid decades into the system. Finally answer the question, what are you? Are you an income replacement annuity or an insurance policy? Or something else? if a life insurance policy your premiums are far to high vs. replacement value given the current paid up rules. if an annuity, which I think is how it is marketed, your premiums are far too low, and will get crushed in the demographic bow wave in the next 30, 40 years of boomer retirees and spouses/dependents living into their 90s over an increasing smaller human capital base in a defense dominated by technology and robotics.

  4. Excellent overview and presentation. Well balanced. My comments and rational for the choices I made IRT SBP were in a previous post. The problems of the SBP in a post-retirement reform/hybrid world comes down how the program competes in the general life insurance, income replacement marketplace. In the old 20 year cliff vesting world, SPB was marketed as a one time, take or leave it, life defining choice. Either in or out. Flexibility, options, on and off ramps depending on life situations were never on the menu. Unlike life insurance polices or annuities which offer a host of forms, sizes or options to fit individual needs and situations. Administratively the program is a bit bulky as most government programs are, as the issue of who and whom were “paid up” in the system was a issue a few years ago.

    I think at the end of the day SPB will be facing the same demographic challenges as the long term care insurance industry which has more or less collapsed the last few years. As the baby boomers age out, die in the next 30 or so years, replacement premiums and participation in the program will not be sufficient to cover expected or promised benefits, and then the program will either have to raise premiums dramatically on a ever deceasing participation pool of post 9-11 military retired, who may carry other forms of insurance or have very healthy TSP accounts with little or no need for SBP. SPB served the military retirement community very well in the industrial age where men died of chronic conditions of physical labors and life expectincies far less than now. Much harder sell and bargain now though.

    Comment? Question? What's on your mind?