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.
Survivor Benefit Plan Factor 1: 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 offices has quadrupled, from 4% to 16%.
Why is this important? Think about this: if the Survivor Benefit Plan (SBP) 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.
Survivor Benefit Plan Factor 2: 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 age has on insurability. An older servicemember is likely to qualify for less insurance, more expensive insurance, or not be insurable at all. Any of those situations makes a more compelling argument in favor of SBP.
Survivor Benefit Plan Factor 3: How insurable are you?
Other than age, are there other factors that might affect the underwriting process for an insurance 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.
- Disability status. 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.
- Sex. Sorry guys…since women generally live longer than men, they’re generally going to pay less for life insurance. Insurance companies also assume that women live healthier lifestyles.
- Smoking status. Smokers 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.
- 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.
- 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.
- 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.
If you’re on the ‘healthy’ side of these factors (i.e. female, non-smoker, good health, etc.), then you’re paying the same rates as everyone else (male, smokers, poor health). You could reasonably assume that you’re subsidizing their insurability by paying a higher rate than you should. For that reason alone, it might be worth fully exploring your options.
Survivor Benefit Plan Factor 4: 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
- Elder care 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, 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.
Survivor Benefit Plan Factor 5: 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. If you only have a limited amount of money available, you might have to establish priorities to make sure you’re adequately covered.
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. If you feel like you need professional advice, you should talk with a fee-only financial planner.