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Survivor benefit plans vs. life insurance

Choose between an annuity-like monthly payment vs. one lump sum for your spouse.

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Survivor benefit plans are available to retiring members of the military or federal government. You’ll be eligible to sign up for survivor benefit plans shortly before retirement. But if you’ve already entered retirement, you won’t be able to go back and sign up.

These plans are similar to life insurance but there are key differences between survivor benefits and life insurance that can have a significant impact on which one you choose.

Features of survivor benefit plans vs. life insurance

Survivor benefit plans Life insurance
What it covers Death of the insured Death of the insured
Who it’s for Retired military or federal employees leaving retirement with spouses who may be younger and/or in good health Anyone who can afford the premiums and who want the freedom of being able to change beneficiaries that will receive a lump-sum payment
Who it pays to Spouse or dependent children Anyone you name as a beneficiary
How it pays Monthly payments One lump sum

What are survivor benefit plans?

Survivor benefit plans are a type of annuity offered to former members of the military and some federal employees. It’s similar to life insurance because the annuity will only start paying a specified amount each month to the surviving spouse when the insured person dies.

How do survivor benefit plans work?

Survivor benefit plan payout amounts are based on the retired military member or federal employee’s retirement pay. These plans don’t require you to pay premiums, but you’ll still have to pay for them by having your retirement payments reduced by a specified percentage.

A survivor benefit plan pays the benefit amount to your spouse for the remainder of their life, with no questions asked or health requirements for them to meet. These plans also automatically include a cost-of-living adjustment, which means the benefit amount your survivor receives may increase to adjust for inflation.

It can only be paid to your surviving spouse, meaning you won’t be able to designate any other beneficiary. The sole exception is to designate your eligible children to receive the benefit amount if your spouse dies while the children are still considered dependents. And if your spouse dies before you do, you won’t receive any refund or compensation from the money you’ve put into your survivor benefit plan.

What is life insurance?

Life insurance pays out one lump sum to your designated beneficiary, which can normally be anyone you want. You can choose the benefit amount that you want to buy and your premiums are mainly based on your age and health condition. You’ll need to pay your premiums on time in order for your life insurance policy to remain active.

How does life insurance work?

Anyone is typically eligible for life insurance, though some people with preconditions, who are in poor health, or are older than 60 years old, may face high premiums or difficulties being approved for a new policy.

Rather than paying out the benefit continuously over time, life insurance pays out a one-time lump sum payment to your beneficiary.

You’ll be able to choose whomever you want for your beneficiary or divide your payout between multiple beneficiaries. As long as you pay the premiums, your policy will remain active and will pay out after you die.

Can I add a family income benefit rider to my life insurance?

Yes, you could opt to add a family income rider to your life insurance policy, which shares similarities with a survivor benefit plan. A family income rider will typically pay a monthly income amount in addition to the death benefit.

The monthly payment is typically equal to the policyholder’s monthly income amount from work, but will only pay out for the remainder of your term policy after you die. For example, if you’re 15 years into a 20-year term policy, your beneficiaries will only receive five years of this monthly benefit amount in addition to your death benefit.

Adding this rider to your life insurance policy will cost extra premium, but it may be worth it if you’re the only breadwinner in your family.

How do I compare survivor benefit plans and life insurance?

The best type of policy for you will come down to your needs surrounding these factors:

  • Flexibility. Having the ability to receive one lump payment from life insurance gives your spouse and beneficiaries more immediate options than a monthly payment for the rest of their life.
  • Guaranteed benefit. Life insurance is guaranteed to pay a benefit when you pass away, whereas a survivor benefit plan only pays your spouse if you die first. If your spouse dies before you, the plan is essentially useless.
  • Cost. While it may be tempting to view a survivor benefit plan as cheaper, that’s not necessarily true since it’s a deduction from your current retirement benefits.
  • Who your beneficiary is. If you only need to consider your spouse, survivor benefits can offer coverage. However, if you’d prefer to list other beneficiaries, you’ll need a life insurance policy to take care of those beneficiaries.
  • Coverage amount. If your beneficiary only needs a minimum amount of monthly coverage to maintain their lifestyle, a survivor plan may be sufficient. But if your family requires a higher coverage amount to get by, you may need to opt for a life insurance plan that offers a higher benefit level.

You could buy both plans as a financial supplement to your spouse, but even then it might make more sense to buy a life insurance policy with a higher death benefit amount and keep your full retirement benefit money.

How do I choose between survivor benefit plans and life insurance?

In most situations, life insurance is a better option for most people. However, a survivor benefit plan might make sense if you view a chance of divorce as minimal, your spouse is younger or the same age as you, is in good health and doesn’t have another retirement plan in place.

Type of insurance Consider this if…
Survivor benefit plans
  • Your spouse doesn’t have any other retirement funds to pull from
  • Your spouse is the same age as you or younger, and in good health
Life insurance
  • You want to name other beneficiaries to receive payout, rather than solely your spouse
  • Your spouse is older than you or isn’t in good health
  • You want to ensure an adequate benefit amount

Compare life insurance policies

Name Product Issue age Minimum Coverage Maximum Coverage Term Lengths Medical Exam Required
Prudential
18 - 75 years old
$100,000
$10,000,000
10, 15, 20, 30 years
Yes
Customize your term life insurance with a long list of life and disability riders. Get a free quote on Policygenius.
Transamerica
18 - 75 years old
$25,000
$10,000,000
10, 15, 20, 25, 30 years
Depends on policy
Purchase a policy worth anywhere from $25,000 to $10 million, with the option to skip the medical exam. Get a free quote on Policygenius.
MassMutual
18 - 80 years old
$2,000
$10,000,000
10, 15, 20, 25, 30 years
Depends on policy
Purchase term life insurance up to age 80 with Finder's #1 ranked company. Get a free quote from this A+ rated insurer on Policygenius.
AIG
AIG
20 - 85 years old
$5,000
$2,000,000
10, 15, 20, 25, 30, 35 years
Yes
Buy term life insurance all the way up to age 85, and choose a policy that lasts up to an incredible 35 years. Get a free quote on Policygenius.
John Hancock
18 - 65 years old
$25,000
$1,000,000
10, 15, 20 years
Depends on policy
Score a low rate on term life insurance with discounts and rewards for your healthy habits. Get a free quote on Policygenius.
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Compare up to 4 providers

Bottom line

Survivor benefit plans and life insurance are similar in that they both provide money to your spouse if you die before they do. Survivor benefit plans pay an annuity-like monthly benefit amount that’s a percentage of your federal retirement plan, whereas life insurance pays one lump sum.

If your spouse passes away before you do, you won’t be able to change the beneficiary with a survivor benefit plan, unlike life insurance. If you’d like to find out what options you have with life insurance, compare life insurers to find the best policy.

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