Enrollment in the Navy Survivor Benefit Plan entitles your surviving spouse, children or insurable interest such as parent or business partner to continue receiving monthly payments (annuity) in the event your retirement pay stops due to your death. The SBP program is designed to protect your survivors against the risks of inflation, your early death and your survivor outliving their benefits. It basically transforms your retirement income from single life payout to a joint and survivor payout so that your loved ones can still receive a portion of your retirement payout.
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As an Navy veteran, the Survivor Benefit Program is managed by the Department of Defense (DOD) not the VA (Veterans Administration), and its premiums and benefits depend on the level of coverage you select. SBP coverage is automatic if you die on active duty, as long as you have an eligible beneficiary, which is a gratuitous benefit as it does not cost you anything for full SBP annuity. Another noteworthy benefit of SBP coverage compared to private pension survivorship plans is that you as the retiree only pay SBP premiums as long as you have an eligible beneficiary.
The base amount you choose can be just a portion as less as $300 of your retirement pay or your full retirement pay.
If you do not make a valid election at the time of your Navy retirement, full basic SBP for your spouse will take effect automatically. Should you wish to decline SBP in this situation, your spouse will also have to agree to the declination. Your surviving spouse will continue to receive benefits at the rate of 55% regardless of their age. SBP payments stop if your spouse remarries before the age of 55, but can be re-established if the marriage ends by death or divorce.
Your eligible children may also qualify to receive benefits under the Survivor Benefit Plan, and the benefits will be divided equally among them at the rate of 55% of your retired pay. Child coverage stops when all children are no longer eligible to receive payments, which is until they reach the age of 18 or 22 and a full time unmarried student. It is important to note that your children are covered regardless of whether you’re married or not, but child only election does require consent of the retiree’s (member) spouse.
You may also extend SBP coverage to a former spouse, which will end annuity to your current spouse. This option may be required as part of a divorce agreement, and if there is more than one former spouse, you must elect the one you wish to be covered to receive SBP payments. If you’re unmarried and have no dependent children, you may select a person with insurable interest to be your SBP beneficiary.
Just like your retirement pay, SBP annuity is protected from inflation, which means that when your retired pay gets a cost of living adjustment each year also known as COLA, so do the premiums and annuity payments. Costs of the Survivor Benefit Plan are not included in your federal tax income, but payments to beneficiaries are taxable.