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In this example, the annuity at age 90 would be nearly four times the covered retired pay at age 40 and over seven times what the benefit would be at the time of the election. This demonstrates two very favorable features of SBP:
If you die shortly after retirement, your surviving spouse could receive cost-of-living adjusted payments for 50 years or more. Lifetime payments from an original election to cover $2,000 of retired pay could total more than two million dollars.
Monthly SBP costs are not included in your taxable Federal income. The true cost for SBP is therefore less than the amount deducted from retired pay because less Federal tax will be paid. As an example, if you are in the 28 percent Federal and State tax bracket, the true cost of a $100 SBP premium is $72. The $72 should be used when comparing the cost of SBP to a comparable cost of commercial life insurance. SBP payments to survivors are taxable, but spouses usually receive benefits when their total income is less and the extra tax exemption for being over age 65 is applicable. The surviving spouse's tax rate is likely to be lower and a long-run significant tax savings would result.
Loss of Spouse
If your spouse dies first or you get divorced, SBP costs will stop (once you notify DFAS).
In divorce cases, spouse coverage may be converted to former spouse coverage.
In some instances of divorce, conversion to provide coverage for the former spouse may be required by court order.
Unmarried at Retirement
The member who is unmarried upon retirement may elect SBP coverage for the first spouse acquired after retiring. However, the election must be submitted to DFAS before the first anniversary of that marriage.