One frequently misunderstood issue about the Survivor Benefit Plan (SBP) is the way that SBP benefits may be offset by Dependency and Indemnity Compensation (DIC) benefits provided by the Department of Veterans Affairs (VA.) Under current law, a survivor may not receive the full amount of both SBP and DIC. In order to receive DIC, the survivor must waive the same amount of SBP. It’s a wildly unpopular law, but has been this way since SBP was created and it’s important that you understand how it could impact your choices with regard to income planning.
Here are some of the most important things to consider:
SBP payments are taxable income. DIC benefits are non-taxable. When subject to the SBP-DIC offset, the average survivor has several hundred dollars of net, take-home income because DIC is non-taxable.
Refund of Premiums
If a survivor is subject to SBP-DIC offset, the survivor will receive a pro-rated refund of the SBP premiums paid. If the entire SBP is offset, they’ll receive all SBP premiums paid; if there is a partial offset, the refund will be calculated to the percentage of SBP being offset.
Any refund of SBP premiums is just the premiums and does not include any interest on that money.
The Ridiculous Remarriage Rule
Generally speaking, DIC benefits are lost when the beneficiary remarries, and SBP payments end if the beneficiary remarries prior to age 55. However, due to a strangely written law, and a court case about it, survivors who remarry after reaching the age of 57 may retain their full SBP and DIC benefits, with no offset applied.
SBP If You Expect Your Survivors To Qualify for DIC
While everyone needs to know about the SBP-DIC offset, it’s a bigger issue for certain folks. If you’ve left the military with a service-connected injury or illness, it may seem obvious that your survivors will be eligible for DIC, and that SBP is unnecessary coverage. Upon further digging, however, there are many reasons you may still want to purchase SBP coverage even if you anticipate DIC benefits.
SBP May Be More Than DIC
First, you’d have to look at the size of your SBP benefit vs. the amount of DIC. If you elected the full SBP, the benefit is 55% of your retirement pay. If that amount is more than the amount of DIC (currently $1,283.11), then your spouse would still get the difference of SBP and DIC from SBP.
They will receive the pro-rated refund of SBP premiums explained above.
The Offset Creates SSIA Entitlement
Survivors who are affected by the SBP-DIC offset are eligible for an additional monthly allowance called the Special Survivors Indemnity Allowance (SSIA). This allowance is $310 in 2018 and will now be adjusted each year for COLA.
DIC Eligibility Isn’t Always Guaranteed
Certain criteria must be met for survivors to be eligible for DIC benefits, and just having a service-connected illness or injury doesn’t mean that will be the cause of death. As awful as it is to consider, you could be involved in a car accident or develop a completely unrelated medical condition and it could mean that your survivors are not eligible for DIC. SBP coverage would then be the only coverage.
From the VA website, the eligibility requirements for DIC are:
- The Servicemember died while on active duty, active duty for training, or inactive duty training, OR
- The Veteran died from an injury or disease deemed to be related to military service, OR
- The Veteran died from a non service-related injury or disease, but was receiving, OR was entitled to receive, VA Compensation for service-connected disability that was rated as totally disabling
- For at least 10 years immediately before death, OR
- Since the Veteran’s release from active duty and for at least five years immediately preceding death, OR
- For at least one year before death if the Veteran was a former prisoner of war who died after September 30, 1999
You should note that even folks who have been determined to be 100% permanently and totally (P&T) disabled by the VA are not immediately guaranteed DIC benefits. If the death is not attributable to military service, survivors are not eligible for DIC until the veteran has been 100% P&T for 5 years (if they are considered 100% at the time of discharge) or 10 years if they don’t consider the 100% determination to have begun at the time of discharge.
The Offset May Be Eliminated
The last thing to consider is the possibility that the SBP-DIC offset will be repealed at some point in the future. Military lobbying groups like MOAA have made this a top priority and bills are introduced every single year to eliminate the offset. It’s entirely possible the law could be changed, and no guarantee that the government would offer an open season to buy into SBP if that happens.
The Offset Doesn’t Decrease Your Income
If your survivor is impacted by the SBP-DIC offset, they will never have less income than you planned with SBP alone. They will always receive the higher of SBP or DIC. In terms of take-home money, those subject to the SBP-DIC offset will receive more than with SBP alone because DIC is non-taxable, and being subject to DIC kicks in the SSIA discussed above.
While the SBP-DIC offset may or may not be right or fair, anyone who says that you “lose” money due to the offset is incorrect. You just don’t get MORE money due to the offset.
Just like everything else about considering SBP, this stuff is complicated and there’s no single right answer. However, you can’t make the right decision for your specific situation if you don’t have all the facts.
Please ask question and let me know ways in which I can make this more clear!
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