If you are on active duty, there is no doubt you are aware of your benefits under the Servicemembers Group Life Insurance (SGLI) program. SGLI is a great insurance product and an excellent benefit available to all servicemembers that pay for it. But, the government also provides insurance protection for those married folks (or those who are unmarried and have dependent children) on active duty through the Survivor’s Benefit Program (SBP). If you are on active duty, there are three things you should know about your SBP benefits. What is your coverage? What is it worth? When did this happen?
What is Your Coverage Under SBP?
As mentioned above, SBP is primarily available for married folks and those with dependent children (without a qualifying spouse). You are covered by SBP if you fall in one of these two classes, you pass away while on active duty, and your passing is classified as in the Line of Duty (LOD). Assuming that the LOD determination is “Yes” then your beneficiary will receive SBP benefits. Now…the math gets a little convoluted here, but the calculation is as follows. The benefit payable will be 55% of the retirement benefit payable if the deceased had been retired with 100% disability on the date of death. There is a much simpler estimate you can make on your own though. The benefit payable is 41.25% of the military member’s base pay. What does that amount to in real numbers (based on 2011 pay tables)? Here are some examples:
- The spouse of an E-4 with 4 years of service would receive $11,042 per year for life.
- The spouse of an E-7 with 18 years of service would receive $20,507 per year for life.
- The spouse of an O-3 with 8 years of service would receive $26,973 per year for life.
- The spouse of an O-5 with 18 years of service would receive $38,890 per year for life.
Remember, these numbers are adjusted for inflation, so each year after death the amount would most likely increase.
It is also important to know that any Dependency and Indemnity Compensation (DIC) received will reduce the SBP amount dollar for dollar. This is o.k. though as the SBP amount or the DIC, whichever is higher, is the minimum you will receive in total. Also, DIC is tax free, but SBP is not. So, if a beneficiary receives DIC her after tax income will be higher if than if she were receiving SBP only for the same amount. I won’t cover DIC eligibility in this column, but in general if a military member dies on active duty, the spouse will most likely be eligible for DIC.
What Is It Worth?
You shouldn’t underestimate the value of this benefit. It is substantial. For a rough estimate take a the annual payment the beneficiary would receive and multiply by 25-35. Use 25 if you are later in your career and 35 if you are early in your career. So, for example for the E-4 in the example above the SBP benefit could be worth approximately $386,000 ($11,042 x 35). For the E-7 the value would be approximately $512,000 ($20,507 x 25). Again, these are estimates and you probably don’t want to use them to calculate the amount of life insurance you need. Instead, calculate the amount of annual living expenses the survivor will have and subract the SBP annual payment from that amount. Then, use the result (the uncovered living expenses) to calculate the amount of life insurance needed.
When Did This Change?
It is important to know when this changed in case you are dealing with someone who says that you won’t receive SBP. There are a lot of good intentioned folks out there (parents, barracks lawyers) that may not keep up with your changing benefits.
So…back when I was new in the USAF, this wasn’t the case. In fact, you used to hear about occasional death-bed retirements. This was done so that the spouse would recieve SBP. This all changed in the wake of the September 11 attacks. Congress changed the law, retroactively, to 11 Sep 2001. So for anyone on active duty on 11 Sep and later this benefit does indeed apply to them.
So, there you have it. A benefit most of us hope we’ll never use. But, it is a benefit you have and it is important to know how it applies to you so you don’t overspend on Life Insurance. Remember…you want just enough insurance to take care of your beneficiaries, but money spent on insurance you don’t need reduces the amount you can Save and Invest.
Curt Sheldon is a Fee-Only Financial Planner based in Northern Virginia. He can be contacted at (703)542-4000 or Curt@CLSheldon.com
The information contained in this blog is for general financial education and should not be construed as individual financial advice. Please consult your own financial, tax or legal advisor prior to applying any principles discussed here to your own financial situation.