Purchasing reduced survivor benefit plan coverage


(Photo: Unsplash, Harli Marten)

One thing that surprises a lot of people is that military retirement pay ends with the death of the service member.  Retiring service members who want to provide income to replace military retirement pay may elect to purchase coverage under the military’s Survivor Benefit Plan (SBP.)  SBP is just one of the many income replacement options available, including life insurance, building up other retirement assets, and having other income streams.  But if you’re looking for guaranteed, lifetime income with an annual cost-of-living adjustment, SBP is the most cost-effective way to do it.  But many folks think of SBP as an all-or-nothing proposition.

It’s true that the option to buy into SBP is basically irrevocable.  (With some exceptions, of course.)  But you don’t have to choose between no SBP and covering the full military retirement pay.  You can purchase coverage for a smaller portion of military retirement pay at a smaller cost.

Let’s say that Annie Airman is retiring, and they’re trying to decide whether to purchase SBP coverage to provide income to Sam Spouse if Annie dies before Sam.  The two most common options are to elect full SBP coverage, which would provide Sam Spouse with 55% of Airman Annie’s military retirement pay, or to decline SBP coverage.  But there is a third option:  to cover only a portion of Annie’s retirement pay.

For purposes of this example, let’s say Airman Annie’s military retirement pay is $3,000, and SBP would provide Sam with $1,650 per month if Annie dies first.  But maybe Sam doesn’t anticipate needing $1,650, but rather anticipates needing $825?  In this case, Annie and Sam could cover $1,500 of Annie’s retirement pay with SBP, and enjoy the lower premiums that are associated with lower coverage.

SBP isn’t the right tool for every family’s financial plan, but it’s the most cost-effective way to provide guaranteed, lifetime income that includes protection against inflation.  Knowing that you can choose partial SBP is a great way to take advantage of the benefits of SBP when your big-picture doesn’t require full coverage.