by Scott R. Tucker

April 22, 2020

death benefits for spouses of veterans

Not sure what to do about SBP and VGLI.  You aren't alone. Many retirees decide to sign up for the government-recommended financial programs without understanding the full Veterans Group Life Insurance and Survivor Benefit Plan Costs. US VetWealth has a better solution.

What you need to know about the costs of the Survivor Benefit Plan:

The last twelve to eighteen months before military retirement includes a firehose of retirement briefings. For most, this is a time of information overload, uncertainty, and possibly fear. And yet this is when retirees have to make a financial decision that can impact their families for generations. Do they want to accept the Survivor Benefit Plan and Veterans Group Life Insurance? Many retirees make this decision without understanding the full Survivor Benefit Plan cost.


Does a Surviving Spouse Get Military Retirement After Death?

Created in 1972, the Survivor Benefit Plan is a form of life insurance that operates as an annuity. Most life insurance policies pay out a lump sum to the beneficiary. The Survivor Benefit Plan doesn’t. Instead, it provides a surviving spouse 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 Survivor Benefit Plan was designed to provide basic financial support when a retired veteran predeceases their spouse. The cost of the Survivor Benefit Plan is the same for everyone—6.5% of their pension, deducted automatically from their pension check. The beneficiary receives a payment only upon the death of the insured veteran.


Veterans Life Insurance Death Benefits

Veterans Group Life Insurance (VGLI), administered by the Veterans Administration, is military life insurance for retirees. Service Members Group Life Insurance (SGLI) is the government-sponsored life insurance provided during active duty service. One of the decisions a service-member has to make when nearing retirement is whether or not to convert SGLI to VGLI. The government presents VGLI as a benefit because there's no qualification required if coverage is accepted within 240 days of service. This is a good option for anyone with a life-threatening disability who cannot qualify for privatized life insurance. But many veterans without life-threatening disabilities don’t realize how much the costs of VGLI increase as they get older. The price of VGLI goes up every five years, and it's a fixed cost for everybody. It's easy to calculate exactly how much someone will be paying into this by referring to the cost table provided by the government.


Service Members and Their Families Don’t Know Enough about the costs of the Survivor Benefit Plan, SGLI, and VGLI

The cost of the Survivor Benefit Plan and of replacing SGLI with VGLI often shocks retirees and their spouses. It often shocks spouses to learn how little they’ll receive in survivorship payments if the worst actually does occur.  

The government presents the Survivor Benefit Plan, SGLI, and VGLI all as benefits, even though the insured is paying for them. Government insurance packages are still insurance. A third-party contracted insurer (Prudential) administers these plans, not the government. The only thing the government gives to the service member or veteran is the guarantee of coverage without qualification. But because the government includes these plans in the military retirement program, many retirees feel compelled to enroll in both plans. In fact, 80% of career service members do this. They don’t realize that they are committing themselves to the cost of the Survivor Benefit Plan for the rest of their lives. Many think that the Survivor Benefit Plan is their only option to give a surviving spouse some financial protection. Retirees receive little to no guidance regarding alternative, privatized options available on the free market.


The Survivor Benefit Plan Cost is Structured Like Social Security

Millions of dollars in premiums go right back to fund existing Survivor Benefit Plan payments. Similar to social security, the continuity of the program depends upon each succeeding generation paying into it. The government does its best to entice its employees to enroll, rather than encouraging them to ensure they do what is in their best interest. Of course, there are circumstances in which the Survivor Benefit Plan/VGLI combo ARE in a military family’s best interest. But if the status quo path from military service, to 9-to-5 grind, to retirement doesn’t inspire you, we’re glad you found this page. Here at US VetWealth, we’ve got a better option for you.

sbp cost


With These Drawbacks, Is the Survivor Benefit Plan Worth the Cost?

The government offers the Survivor Benefit Plan without qualification to retirees of any age, health, physical condition, life expectancy, etc. This makes Survivor Benefit Plan sound like a good deal; the problem is that the government only makes these arguments. The Survivor Benefit Plan has some drawbacks.

  • The Survivor Benefit Plan 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. This is worth considering in cases where there is a significant age gap, the spouse is ill, or the service member is female, since women are statistically likely to live longer than men. 
  • SBP only pays a benefit 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, Survivor Benefit Plan payments stop.
  • The Survivor Benefit Plan 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 Survivor Benefit Plan benefits than it does to receive payments for other life insurance products. (Well, it is the government.) It takes a minimum of 45 to 60 days to start receiving benefits. This assumes there are no problems handling the paperwork (again, it is the government, ahem). Other life insurance products will send you a check for the full death benefit tax-free within a week or two.

How the Survivor Benefit Plan Cost Works

A retiree gets one chance to make the decision whether or not to take the Survivor Benefit Plan. He or she must make the decision 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 take the Survivor Benefit Plan 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. 

True, the Survivor Benefit Plan can provide a monthly check to help pay the bills in the event that 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. And your Survivor Benefit Plan payments?

Like social security, they are going to some pot of money the government controls. They help to fund current SBP survivorship payments. Your payments 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 Survivor Benefit Plan 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.

That spouse is also likely to receive more in annuity payments than they paid into the plan. In some cases this will be true. However, 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.


Survivor Benefit Plan 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.

Is the Survivor Benefit Plan Worth It?

The ONLY way that the Survivor Benefit Plan cost makes good all-around financial sense with regards to ROI is if a service member dies within a few years of retiring. 6.5% of the pension adjusted for inflation, deducted over a couple of years, in return for 55% of the pension, again adjusted for inflation, to be paid to the spouse for life sounds like a pretty good deal. It is, as long as the insured retiree dies within a few years of retiring from the military.

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The Problems with SGLI/VGLI

When the topic of life insurance comes up during active duty service, it is usually about the SGLI, and the response is typically, “I’m good for insurance. I don’t have a family yet, and SGLI will take care of it for me when I do.” 

This creates a tremendous risk of never being able to qualify for a privatized option in the future, should some medical issues come up during service. It is in everyone’s financial best interest to qualify for private insurance when they are young and healthy. Insurance costs will go up in their thirties and forties when they leave service with a number of medical issues. SGLI ends with active duty. Using it as a safety blanket backfires time and again. Transitioning service members unable to qualify for any other life insurance have no choice but to take VGLI. This a shocking oversight with a costly outcome.


Survivor Benefit Plan Cost


Just how costly is SBP?

The Survivor Benefit Plan Cost for an E7 with 20 years of service has paid about $300 a year for life insurance (SGLI). When VGLI replaces SGLI at retirement, the government no longer subsidizes those payments, so they get much higher. In year one, VGLI is $800 a year (vs. $300 a year being paid previously). And every five years, the costs will go up. The cost of Life Insurance for veterans over 70 becomes astronomical. Say our E7 wants to leaves the (mere) $400,000 death benefit for his spouse. By the time he reaches the age of 75, he’ll be paying $1,840 a month for this coverage. 

These costs are astronomical. It’s unrealistic to expect that any veteran living off their pension will be able to keep up with them. What if they have to stop coverage because they can no longer afford the premiums? Then that $400,000 death benefit is not going to be around when the veteran wants to leave a legacy.

One last thought: Underwriting for SGLI and VGLI takes place in the private marketplace. Most service members and veterans don’t realize that their payments go to a contracted private insurer—not the government. This private insurer is a middleman who profits off of them.


The Survivor Benefit Plan Cost and VGLI: A Recap

Again, these plans are not really benefits. The government does not give these plans to service members and veterans. They sell them.

Government insurance packages are financial solutions managed by a private company operating in the private marketplace. 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?

Our Alternative: Your Survivor Liberty Plan

Our alternative to the Survivor Benefit Plan and VGLI problem gives you both a lot more equity growth (as interest depends on the S&P 500 performance, not the federal bond rate) and a lot more liquidity that you can access while you're still alive. It offers a safeguard against negative market returns. It allows you to both comfortably fund your retirement and still be able to leave a legacy behind you when you die.

This new, modern approach to privatizing the costs of SBP 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 between the Survivor Liberty Plan and what most think are the only other solutions (SBP, term life insurance (SGLI/VGLI), and whole life) are flexibility and control. 

The Survivor Benefit Plan cost 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 your 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 Survivor Liberty Plan is Better 

Some consider term insurance a better option to the Survivor Benefit Plan due to its much lower cost. But the problem there is actually much worse. Flexibility and control remain elusive. A 30-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 relaying on the stock market is unrealistic. There are far too many variables likely to take place within the next 30 years.

For both the Survivor Benefit Plan and term insurance, the likelihood of sunken cost and no legacy protection are 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 the 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 in order to provide a survivor benefit. It also dishonors the 20+ years of investment (sacrifice) that the veteran and their family gave to this country.


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 Survivor Liberty 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 Survivor Liberty 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. There’s no option to leverage the Survivor Benefit Plan death benefit to help with long term care costs.

The Survivor Liberty 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 Survivor Benefit Plan costs you up to 6.5% of your pension. 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 Survivor Liberty 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. With your Survivor Liberty Plan, you can both capture and lock in the growth offered by the securities market without the value of your policy being negatively affected by market corrections. 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 cost of the Survivor Benefit Plan (6.5% of your pension) 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.

When we first set up your Survivor Liberty Plan, we structure it to start out with the lowest possible death benefit. This is to keep the cost of funding the plan low. This type of product normally takes 10 to 15 years just to break even. But our strategy can bring that timeline down to three to five years, if not immediately. It takes a lot less time for the cash value of the policy to grow at a pace that outstrips inflation. It quickly starts keeping pace with things like the S&P 500. The money you use to fund the plan keeps pace with inflation. It also grows in value over time, because you have invested it.


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 Survivor Liberty Plan. You can also redirect whatever other contributions you want to provide, using a mechanism called a 1035 exchange.

In the best-case scenario, whole life plans usually grow between two and four percent compounded annually. The death benefits are typically significantly higher than they need to be. This is because the agent sells them as an alternative to term instead of as a compliment. The agent makes more money selling a whole life insurance policy. As a result, the cost to insure is also very high. It takes about 10 to 15 years of regular contributions for an insured person to fully cover the cost of their insurance before they break even.  Until they do, there is no equity that can be accessed.

Moving these funds into a Survivor Liberty Plan using the 1035 provision allows those returns to take effect much earlier. This basically 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 Survivor Liberty Plan for various reasons. Many cite their disability rating, tobacco use, flight status, Special Forces, pre-existing health condition, cannabis use, etc.

This is simply not the case. Many retiring service members receive disability ratings from the VA for issues that are relatively minor 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 Survivor Liberty Plan is about much more than the death benefit. 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 Survivor Liberty 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 Survivor Liberty Plan.

The Survivor Liberty 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. In the event that a lawsuit that 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. Same goes for Term and Whole life insurance. With the Survivor Liberty Plan, there is liquidity for the retiree and the surviving spouse. Nobody has to die in order to be able to access it. The Survivor Liberty Plan has something called the cash surrender value. This is the amount of fully liquid cash that's available to be taken in distributions without penalties or taxes. As long as a person keeps 10% of that number inside the plan, they can do whatever they want with the rest. The other 90% is a combination of contributions and the returns on invested dollars. 


9. Create tax-free retirement income.

The greatest expense most American will ever face in their lifetime is taxes. More baby boomers are retiring and less millennials are working. Our national debt is rising. Our government will struggle to pay for unfunded liabilities like social security, Medicare, and Medicaid. It’s not going to be possible to maintain our current low tax rates. Distributions from 401(k) retirement plans are subject to income tax as soon as you begin taking your Required Minimum Distributions at age 70 ½ . We can expect much higher marginal tax rates within the next decade. This is a risky situation for retirees, who don’t want to hand over their hard-earned retirement savings to Uncle Sam.

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 of your Survivor Liberty Plan tax free.


Is the Survivor Liberty Plan right for you?

The Survivor Benefit Plan cost is high considering the potential for ROI.  The SBP one-size-fits-all option for solving a complex problem. It wasn’t designed to address every financial need, and it has definite drawbacks. As with every major life decision, every service member and veteran should reflect on their individual situation (together with their spouses) to determine whether or not the SBP is the best fit for their financial situation. The Survivor Liberty Plan 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.

That said, the Survivor Liberty Plan is not for everyone. Depending on your individual, family, health, and financial situations, as well as your vision for your life, the traditional SBP/VGLI or SBP/term insurance strategies may be the best solution for you.

But if you want to do anything other than follow the traditional path from military service to 9-to-5 job to retirement; if you and/or your spouse want to devote your post-military lives to a new means of service that involves starting a business or any other kind of lifestyle that will require the availability of funds much sooner than the normal retirement age, then the Survivor Liberty Plan offers both sensible financial protection for the family (tax-free retirement income, long term care protection, legacy for heirs, etc.) and the flexibility, control, and liquidity that will allow you to forge your own path. 


Get the White Paper Now!

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None of this matters if you don’t qualify.

If you are reading this blog post, or if you have clicked over and read our white paper, then you may be contemplating a deep dive into the modern insurance products we are referencing right now. We urge to hold up before doing that. Instead, take a very simple first step: reach out to us to see if you qualify. Neither your interest in our solution or your deep dive research into it matters if you don’t know if you even qualify for the plan. This is why we like to put all the information out there for free and share it. It saves both of us a ton of time. 

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. The ideal time to get qualified for the most amount of insurance is when you're twenty. If you can get $10 million of coverage when you're 20, you should do that. Why not? It's so cheap, and you can pass it off to so many people and have that rating for the rest of your life. Few know that once you get qualified, the insurance company can never take that qualification rating away from you. It doesn't hurt. It’s a simple medical exam and an application, and you're done with it.


When You Know For Sure...

When the results come back, then you can actually make an informed decision about whether it is something you want to pursue. Why waste your time doing the financial analysis and planning only to find out during the application process that you don’t qualify? 

In order to determine if you qualify, you must go through the underwriting process. In order to get underwritten, you have to apply. Going through the qualification process DOES NOT commit you to buy the policy. Finding out that you qualify DOES NOT commit you to buy the policy either.

The sooner you apply—today, while you are young and/or in good health—the better. Find out for certain that you qualify. Then, if the Survivor Liberty Plan is something you want to consider, you can take as much time as you need. You can reflect and discuss your options with us before making a commitment.

If you want to avoid the Survivor Benefit Plan Cost then Reach out to US VetWealth to see if you qualify today. 

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. He's the Rosie Network's #1 Fan and a passionate supporter of the Veterans Cannabis Project.

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