Is SBP Worth It? 9 Military Survivor Benefit Plan Shortfalls

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IS SBP WORTH It?

Would you like to decline SBP coverage of your future retired pay? You aren't alone. Many retirees decide to sign up for the government-recommended financial programs without understanding the full Survivor Benefit Plan Costs. US VetWealth has a better solution I'll discuss at the end of this article. First, let's take a look at the concerns for the average military retiree.

Does a Surviving Spouse Get Retired Pay After Death?

Most life insurance policies pay out a lump sum to an eligible beneficiary. If you elect SBP coverage it provides surviving spouses with a monthly payment of 55% of the retiree's military retirement after their death. These payments continue until the survivor either passes away or is no longer eligible to receive the payments.

The SBP was designed to provide basic financial support when an active duty service member or retired veteran predeceases their spouse. The cost of SBP is the same for everyone—6.5% of the pension, deducted automatically from their retirement pay. The SBP beneficiary receives payment only upon the death of the insured veteran.


Is the SBP Worth the Cost?

The government offers SBP benefits without qualification to retirees of any age, health, physical condition, life expectancy, etc. Here are some drawbacks.

  • The Survivor Benefit Plan SBP cost is high. Yet, the likelihood that a retiree's spouse (or qualifying child) will ever receive any tangible return from it is low. 
  • If the spouse predeceases the service member, then all the funds paid into the plan are simply a loss from net retired pay. 
  • An SBP election only covers retired pay if the insured dies. There is no equity or return on investment while the insured retiree is alive.
  • Children over the age of 21 cannot be beneficiaries. If the spouse dies after the retiree, if all children are over 21, child coverage stops.
  • The SBP is complicated to manage during major life events like divorce, and there is a risk of losing the benefit. 
  • If the insured military retiree doesn't die within the payment plan's 30-year term, then there is a significant opportunity cost. The loss can add up to hundreds of thousands of dollars.
  • It takes much longer to start receiving SBP benefits than it does to receive payments for other life insurance products, a minimum of 45 to 60 days to start receiving benefits. This assumes there are no problems handling the paperwork. Other life insurance products will send you a check for the full death benefit tax-free within a week or two.

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How the Survivor Benefit Plan Cost Works

A retiree gets one chance to decide whether or not to decline SBP payments. He or she must decide at retirement, or within a year of a change in life circumstances, like remarriage or parenthood.

If the veteran has a spouse at retirement, then there is no choice. The spouse and children automatically receive full coverage (6.5% of the pension) unless the spouse declines or elects lower coverage. The decision as to whether or not to pay the SBP premiums rests SOLELY with the spouse. To decline, a spouse must opt out with a notarized signature. 

There is no requirement to qualify during the underwriting process. This may seem like an advantage. But a plan that doesn't have qualification requirements isn't an advantage for someone in excellent health. Excellent health usually qualifies for a much lower premium rate in the private marketplace. 

SBP coverage can provide a monthly check to help pay the bills if a service member or veteran dies prematurely. In the long run, however, the amount of money the beneficiary receives in that annuity is usually considerably less than what the monthly premium amounts could have generated as investments and insurance in the private marketplace.

SBP payments are going to some pot of money the government controls. They help to fund current surviving spouse payments. Your premiums do not become investments that fund YOUR spouse's SBP payments thirty years from now. How do you know there will be anything left when it's time for your spouse to receive payments?


How Many Years Do You Have to Pay for the Cost of SBP?

If you have sat through a military retirement SBP briefing then you have no doubt heard the argument that it takes 30 years to “pay up” SBP premiums. This means that there is a cap on premium payments, while the annuity payments continue as long as the spouse lives. Therefore, even a surviving spouse of a retiree who paid 30 years of Survivor Benefit Plan cost only needs to receive the annuity for just under 2.5 years to recoup the total amount spent on premiums.


What if the Spouse Pre-Deceases the Veteran?

What was paid into the SBP will be a complete loss should the spouse predecease the retiree. Annuity payments stop when the spouse dies. There is no opportunity for the amount of money the retiree and spouse have paid into the SBP to provide a legacy for their grown heirs.


SBP Coverage and VA Disability

A further matter for consideration is that there is no survivor payment on disability income. If the retiree's disability payment makes up a significant portion of the income that his or her family depends on, that income disappears when the retiree dies, regardless of whether or not the retiree elected the SBP.


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The SBP Benefits: A Recap

Again, these plans are not beneficial. The government does not give these plans to service members and veterans. They sell them in the form of an SBP annuity.

Government insurance packages are financial solutions managed in the form of an IOU with no flexibility. The fact is, what these plans offer is not the best deal across the board for everyone. They are only the best deal for those who have no other options. If you already pay for insurance or plan to, doesn't it make financial sense to find the best plan that you can that will do the most for your family?


The New SBP Alternative: The Spouse Benefit Plan

The most significant advantage of our solution is that it provides you with considerably more equity growth and liquidity while you're still living. It ensures that your investments do not decline in value. You can use this strategy to save for retirement and leave a legacy after you pass away.

This new, modern approach to privatizing the costs of SBP coverage or pension protection has been available for a few years. Yet, few financial experts and professionals are aware of it or its game-changing advantages. The key differences are flexibility and control. 

The SBP annuity offers neither. Once enrolled, the cost of the Survivor Benefit Plan does not change. You pay that monthly cost until you die. Everyone pays the same rate, regardless of their health and age. Assuming the veteran passes away first, the spouse receives a monthly annuity until their death. The amount received is only 55% of what the veteran was receiving. That's it. There's nothing beyond that. The veteran's service disappears from memory and there is no legacy.


Why the Spouse Benefit Plan is Better 

A financial advisor would recommend basic term insurance as a better option to the Survivor Benefit Plan due to its much lower cost. But the problem there is much worse. A 20-year term means exactly that. You commit to a fixed program that only has an ROI if the insured dies early.

What's worse is the assumption that typically goes along with the purchase of term insurance. The idea is that over time, the veteran will “insure themselves” via asset growth, making the insurance eventually unnecessary anyway. To count on becoming self-insured by relying on the stock market is unrealistic. There are far too many variables likely to take place within the next 30 years.

For both the SBP and term insurance, the likelihood of sunken cost and no legacy protection is VERY real. Yet no one in the government, the military financial planning world, or the expert blogging community are focusing on these problems. They don't recognize the potential of innovations occurring in the financial industry.

Instead, they keep guiding our community into traditional, more risky solutions like the SBP and term or whole life insurance. This dishonors the financial investment that veterans have made to provide a survivor benefit. It also dishonors the 20+ years of investment (sacrifice) that the veteran and their family gave to this country.

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What's Your Service Worth To You?

We believe it is just plain wrong to accept that those 20 years of service won't be rewarded for a lifetime and beyond when in the modern age such a solution is both possible and accessible. That's why we have spent the better part of ten years researching the financial vehicles and creating your Spouse Benefit Plan. Our team members do not have quotas to fill. We offer these financial vehicles to our clients at substantially less cost than they would pay in “invest the rest” investment fees or for other whole life policies.

Below are some of the reasons why we believe our Spouse Benefit Plan is superior to other life insurance/pension protection vehicles on the market today.


1. Pay For Long-Term Care Costs.

Few people think about long-term care costs. But failure to plan for long-term care can quickly wipe out retirement funds. Not only are people living longer, they often require high-cost medical care that didn't exist just a few decades ago. Costs like assisted living won't be covered by the VA and Medicare.

The Spouse Benefit Plan offers a long-term care provision. It allows a living insured to use a portion of their death benefit to pay for assisted living costs. Those costs can also be paid to a close friend or family member. This provision is a game-changing solution. It can mitigate the risk of a veteran being forced to liquidate their hard-earned retirement funds to pay for health care costs before they can qualify for Medicare. With a Survivor Liberty Plan, the veteran can ensure their own self-care and still have a large probability of leaving a lasting legacy for his/her heirs. 


2. Offer A Guaranteed Return On Your Investment.

The SBP costs you up to 6.5% of your gross retired pay. This is a significant amount of money over twenty or thirty years. There is no ROI unless the insured dies. Even then, there is no inheritance available to the heirs.

The Spouse Benefit Plan, on the other hand, offers more equity. It also offers liquidity that the insured can access while they're still living. And unlike term insurance, the protection never ends. You may capture and lock in the growth of the market without having your policy's value harmed by market fluctuations thanks to the Spouse Benefit Plan. The worst-case scenario market rate of return in any circumstances is zero. You get to keep all of your market gains, but you don't experience market losses. During any downturns, you simply experience zero growth on your intact principal.

Furthermore, the benefit doesn't just get paid to the surviving spouse. Nor does your investment evaporate should the spouse predecease the retiree. Your Survivor Liberty Plan can be structured so that it gets paid to the next generation as a legacy.


3. You Avoid Opportunity Cost.

There is an opportunity cost for not having the insurance plan's premiums liquid and invested. The SBP may never pay any annuity. And if it does, it will be less than what might have been generated had those premiums been invested over the long term.


4. You Don't Have To Start A Plan From Scratch.

If you have already sunk money into an older whole life insurance policy, you can redirect that investment into the Spouse Benefit Plan. You can also redirect whatever other contributions you want to provide, using a mechanism called a 1035 exchange.

Moving these funds into a Spouse Benefit Plan using the 1035 provision allows those returns to take effect much earlier. This amounts to taking money that you've already put to work for you and giving it a raise.


5. You Don't Have To Be In Perfect Health To Qualify.

Some people worry that they won't qualify for the Spouse Benefit Plan for various reasons. Many cite their VA disability rating, tobacco use, active duty flight status, Special Forces, pre-existing health condition, etc.

This is simply not the case. Many retiring service members receive disability ratings from the VA for relatively minor issues and of no concern at all to life insurance underwriters. It is worth the time to go through the underwriting process to see whether or not your disability will prevent you from qualifying. With regards to other possible concerns, it is possible to obtain a policy within a variety of situations. When qualifying during the underwriting process, the insurance company determines how much of a death benefit to offer. They base the amount on the likelihood that they are going to have to pay out this death benefit.

Your physical condition or lifestyle may have an impact on the amount of death benefit you qualify for. However, this should not be a showstopper. In a term life insurance policy, the only advantage is the death benefit. The Spouse Benefit Plan is about much more than the death benefit for spouses of veterans. It's about having a place to protect and grow your money without exposure to the risk of market volatility or taxes.

That said, health qualification is an aspect of establishing a Spouse Benefit Plan. If you think this might be a viable military financial solution for you, don't wait. The sooner you initiate the process, while younger and in good health, the easier the process will be.


6. You Don't Have To Have A Lot Of Money To Fund The Spouse Benefit Plan.

The Spouse Benefit Plan can be funded with as much or as little as you want to contribute. You can pay for it for as long or as short of a period as you like. You can customize your premiums/contributions and adjust them over time as your life circumstances change.


7. Litigation Risk Protection.

A permanent life insurance policy is not part of an estate tax bill or otherwise part of an individual's net worth. This means it can't be taken from you to pay for legal damages. If a lawsuit ends badly, other assets might be taken from you. But you will retain complete control over and access to your Survivor Liberty Plan.


8. Up To 90% Liquidity Of Your New Asset.

There is no liquidity in either the SBP or VGLI unless the insured dies. The same goes for Term and Whole life insurance. With the Spouse Benefit Plan, there is liquidity for the retiree and the surviving spouse. Nobody has to die to be able to access up to 90% of it.


9. Create Tax-Free Retirement Income.

The greatest expense most Americans will ever face in their lifetime is taxes. More baby boomers are retiring and fewer millennials are working. Our national debt is rising. Our government will struggle to pay for unfunded liabilities like social security, Medicare, and Medicaid. We can expect much higher marginal tax rates within the next decade.

Wealthy Americans leveraged the tax advantages of whole life in the 1980s. Similarly, modern life insurance leverages IRS code 72(t) to provide the same advantages with greater flexibility and control. It allows you to access up to 90% of the equity tax

tax-free.


Is The Spouse Benefit Plan Right For You?

As with every major life decision, every service member and the veteran should reflect on their situation (together with their spouses) to determine whether or not the SBP is the best fit for their financial situation. US VetWealth offers an alternative. It focuses on the service member's life rather than their death. It also properly values the service member's military career and the sacrifices made by their spouse and family.


None Of This Matters If You Don't Qualify.

If you're serious about considering this modern, privatized approach to your financial future, then reach out to us. Let us know that you are ready to go through the application and underwriting process. There is a risk to waiting. Something could pop up medically or you could be involved in some accident that might change your health circumstances.


-> If you want to avoid the SBP Cost then Reach out to US VetWealth to see if you qualify today.


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About the author 

Scott R. Tucker

Scott R. Tucker is an author, speaker and the founder of US VetWealth, a lifestyle and financial consulting brand that helps service members go from paychecks and government benefits to wealth and liberty. He likes to say, "I Help The 1% Who Serve Our Country Become The 1% Who Influence It." A West Point graduate, serial world traveler, military financial expert, and entrepreneur, Scott brings valuable experience and insight to those who have sacrificed so much in service to our country.

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