SBP benefits are taxed as income to the survivor however the tax rate upon receipt of the annuity will generally be less than the member's current tax rate. Another consideration is that SBP premiums reduce the retiree's taxable income and reduce out-of-pocket costs for coverage.
One reason is that SBP premiums have a built-in discount (in the form of the government paying a significant portion of the premiums and all program operating costs), making the Plan a good buy for most people. In fact, no known insurance company has guaranteed to match SBP benefits at equal cost or less. Few, if any, private insurance plans will fully insure a survivor against inflation. It erodes the value of fixed incomes, making them worth less and less as time goes by. Inflation may be the biggest financial uncertainty of all. In addition to long life, another unpredictable reason a survivor may outlive the benefits is inflation! SBP protects against this risk through Cost of Living Adjustments (COLAs). Many insurance plans pay a fixed benefit that may run out years before the survivor dies. But, SBP does more! It also protects the survivor against the possibility of outliving the benefit. Similar to life insurance, SBP protects survivors against a loss of financial security upon the death of a retired member. However, SBP premiums and benefits differ from those of most insurance plans. SBP is a way to do this it is similar to life insurance. Since it stops when a retiree dies and no one can foresee when that will be, it may be useful to protect it. We buy it to protect ourselves from the financial hardships of events we can't foresee, like car accidents and house fires. We buy insurance as a way to cope with major financial risks.
SBP and Other Estate Planning Information Child coverage is relatively inexpensive because children get benefits only while they are considered eligible dependents.Ĭoverage is also available for a former spouse or, if the retiree has no spouse or children, for an "insurable interest" (such as a business partner or parent). Eligible children equally divide a benefit that is 55 percent of the member's elected base amount. In the latter case, the children receive benefits only if the spouse dies or otherwise becomes ineligible to receive the annuity. However, a smaller amount may be elected.Įligible children may also be SBP beneficiaries, either alone or added to spouse coverage. The maximum SBP annuity for a spouse is based on 55 percent of the member's retired pay (or in the case of a member who retires under REDUX, the retired pay the member would have received if under the high-three retirement system). For most retirees, SBP is a good choice, but the government contribution is based on assumptions in average cases and may not apply equally to every situation. The premiums are partially funded by the government and the costs of operating the program are absorbed by the government, so the average premiums are well below the cost for a conventional insurance policy. This means less tax and less out-of-pocket costs for SBP. Premiums are paid from gross retired pay, so they don't count as income. It pays your eligible survivors an inflation-adjusted monthly income.Ī military retiree pays premiums for SBP coverage upon retiring. The annuity which is based on a percentage of retired pay is called SBP and is paid to an eligible beneficiary. The Survivor Benefit Plan (SBP) allows a retiree to ensure, after death, a continuous lifetime annuity for their dependents.
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