Military SBP--Delicate Situation [also bad VUL]

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warthog01
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Military SBP--Delicate Situation [also bad VUL]

Post by warthog01 »

Hi

My wife and I are on the brink of heading for the divorce courts after 40+ years of marriage. The most contentious issue is the fact that I opted only for a minimum contribution to SBP on retirement. Importantly (I hope) I did not reject the plan completely and have been contributing a small amount since retirement to keep it alive. She, understandably, is highly upset that I opted for a VUL Policy in lieu of SBP and it is not performing well.

The delicacy of the situation is as follows: I'm aware that I could opt for full SBP coverage if we divorced and I remarried, but what would be the rules if we divorced and I remarried HER after a suitable period? I cannot seem to get a clear reading on this online and I am hesitant to broach the subject with an official government source dealing with SBP. I don't foresee an open season that would allow an upgrade to SBP, so am reduced to attempting to find a loophole.

Can anyone out there assist, if not with a definitive answer, perhaps a referral to someone knowledgeable I could correspond with confidentially?

Thanks in advance
Alex Frakt
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Re: Military SBP--Delicate Situation

Post by Alex Frakt »

Just trying to get the conversation going. But could you post more info on your VUL? Perhaps something could be salvaged there.
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BL
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Re: Military SBP--Delicate Situation [also bad VUL]

Post by BL »

warthog01 wrote:Hi

My wife and I are on the brink of heading for the divorce courts after 40+ years of marriage. The most contentious issue is the fact that I opted only for a minimum contribution to SBP on retirement. Importantly (I hope) I did not reject the plan completely and have been contributing a small amount since retirement to keep it alive. She, understandably, is highly upset that I opted for a VUL Policy in lieu of SBP and it is not performing well.

The delicacy of the situation is as follows: I'm aware that I could opt for full SBP coverage if we divorced and I remarried, but what would be the rules if we divorced and I remarried HER after a suitable period? I cannot seem to get a clear reading on this online and I am hesitant to broach the subject with an official government source dealing with SBP. I don't foresee an open season that would allow an upgrade to SBP, so am reduced to attempting to find a loophole.

Can anyone out there assist, if not with a definitive answer, perhaps a referral to someone knowledgeable I could correspond with confidentially?
Thanks in advance
There is some basic information here with additional links, but your main questions are not answered:
http://www.dfas.mil/retiredmilitary/pro ... hange.html
It does sound to me that the likeliest outcome with a remarriage is that you could only do the same as you did with previous spouse. There may be other information elsewhere.
If you were married and elected Full Spouse coverage at retirement, you can notify us at any time of your remarriage and a new Full Spouse election will automatically begin effective one year after that marriage date. Spousal concurrence must be obtained to begin coverage at any level lower than the original Spouse election.

If you were married at retirement and elected not to cover your spouse, you cannot ever cover another spouse throughout retirement.
Increasing in "open season" can be very costly (but may be worthwhile):
Open Season
Only a decision by Congress to initiate a free period of enrollment called an “Open Season” would allow a retiree to begin a new election after retirement. Such periods are rare. The most recent Open Season was in 2005. During this period, everyone who took advantage was required to “buy-in” to the program, meaning they paid an amount equal to the total of all premiums they would have paid if they had enrolled when they first became eligible.
It is unfortunate that you were sold insurance as a substitute, especially the VUL.
mikeast
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Re: Military SBP--Delicate Situation [also bad VUL]

Post by mikeast »

Couple of points:

Chances are your divorce decree will order you to elect Former Spouse Coverage in which case, the base amount will not change.
Your ex remains covered at the same rate she had when you were married. You cannot "split" SBP coverage among current and former spouses, so if you remarry, new spouse cannot be covered.

In the event that your divorce does not specify Former Spouse Coverage or she remarries and SBP is cancelled , you will not be able to insure a new wife at full coverage. The base amount you and you wife chose at retirement cannot be changed. Long story short, no--you cant divorce her and increase her coverage if you marry her again.

Nearest military base should have an RSO (Retirement Services Officer) who can verify this information.

You and your wife both should familiarize yourselves with the Uniformed Services Former Spouse Protection Act (USFSPA).

Hope this helps,

Mike
Last edited by mikeast on Tue May 05, 2015 5:12 am, edited 1 time in total.
Topic Author
warthog01
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Re: Military SBP--Delicate Situation [also bad VUL]

Post by warthog01 »

Alex, BL and Mikeast

Thanks for getting back to me. I'm working with the guy who sold me the VUL 20 years ago in an attempt to keep it afloat. I can't avoid the fact that I took my eye off the ball, not fully understanding the impact of 'cost of insurance' on the cash value so I didn't increase premiums to balance that. Having said that, as my 'financial advisor' a gentle prod from him over the years would have been very helpful but it never came.

The passage from OSD Website I've been looking at for remarriage is as follows (remember, I did not decline SBP entirely, but have been paying a minimum premium all these years):
Re-marriage

If spouse coverage is elected and the spouse is lost through death or divorce, the cost of SBP coverage is
suspended. If the member remarries and has not converted to former spouse coverage, three options are
available. The member must notify the finance center of the desired option within one year of the new
marriage. If the member fails to notify the finance center, option one below will automatically take effect on the
first anniversary of the remarriage and the member will be responsible for premium costs beginning the first
day of the 13th month. The three options are:
1. Resume the original level of spouse coverage.
2. Elect not to resume spouse SBP coverage, in which case the spouse will be notified and the
election cannot be changed.
3. Elect to cover an increased portion of retired pay.

In some instances former spouse coverage may be changed to spouse coverage.
The associated impacts on monthly spouse premium amounts are:
1. Resume original coverage: Costs will be the same as they would have been under the original
election, as increased by COLAs, had that election remained in effect since it was first made. In
other words, premiums will be increased by the adjustments that occurred while SBP was
suspended.
2. Terminate SBP spouse coverage: No deduction will be taken from retired pay for SBP coverage.
3. Increase level of covered retired pay: Retroactive payments must be made WITHIN ONE YEAR of
the new marriage. These payments will be computed as if the increased coverage had been in effect
from the date of the original election until the costs were suspended, minus all costs actually paid to
that date. Interest charges will apply. No costs will be attributed to the period during which SBP was
suspended. The new monthly costs will be those that would apply if the increased coverage had
been in effect since retirement.

Effective Dates
Coverage and costs for an election for a new spouse are effective after one year of marriage or upon the birth
of a child of that marriage, whichever occurs first. If remarried to the spouse for whom you elected coverage at
the time of retirement (or during the 21 Sep 72 - 20 Mar 74 open enrollment period), coverage and costs are
effective immediately.

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Obviously a very complex issue, but it appears to me that if I married someone else under certain circumstances I could elect to cover an increased proportion of retired pay--why not my (former) wife?
mikeast
Posts: 153
Joined: Mon Jul 02, 2007 11:13 am

Re: Military SBP--Delicate Situation [also bad VUL]

Post by mikeast »

Some more detailed information here:

http://www.retirees.af.mil/factsheets/f ... p?id=11692

you'd have to buy your way back in by paying the difference between your initial election and full coverage (with interest)
Topic Author
warthog01
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Joined: Mon May 04, 2015 6:50 am

Re: Military SBP--Delicate Situation [also bad VUL]

Post by warthog01 »

Thanks, Mike

Very helpful and yes, I understand the cost of buying back into the program. I'm cautiously investigating the issue with Military Personnel, but as yet, I've seen nothing in writing that specifically PRECLUDES my being afforded the same three SBP options if I remarried my current wife as opposed to someone different.

Hopefully not just wishful thinking.
Alex Frakt
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Re: Military SBP--Delicate Situation [also bad VUL]

Post by Alex Frakt »

warthog01 wrote: I'm working with the guy who sold me the VUL 20 years ago in an attempt to keep it afloat. I can't avoid the fact that I took my eye off the ball, not fully understanding the impact of 'cost of insurance' on the cash value so I didn't increase premiums to balance that. Having said that, as my 'financial advisor' a gentle prod from him over the years would have been very helpful but it never came.
Why on earth are you giving the guy who ripped you off 20 years ago another chance to line his pocket at your expense? I strongly recommend you gather up the info on your VUL policy and post it as a new thread.

Here's an example you may be able to use as a template: viewtopic.php?f=2&t=127160
Topic Author
warthog01
Posts: 18
Joined: Mon May 04, 2015 6:50 am

Re: Military SBP--Delicate Situation [also bad VUL]

Post by warthog01 »

Thanks, Alex

That's a fair comment and I appreciate your being direct. A couple fairly lame responses to your question:
1. I feel extremely guilty for letting my wife down on the SBP front, so I have been concentrating on rectifying that major mistake. In my current situation, I see the VUL cash value as a means to buy back into SBP, so have focused on that to date.
2. I'm a retired military officer living overseas (UK) so I'm seriously out of the loop in knowing where to go to seek assistance in the US. Bogleheads have been most helpful in this regard, but I still feel isolated financially.

I've had a look at the template you provided and will fill in the blanks here as best I can. I don't see an option to attach a file but perhaps this will get the ball rolling, hoping some of the bogleheads with expertise in this area can help with (1) how to assess an existing policy, and (2) what are my options?

I am the owner of a VUL policy that I purchased on retirement from the Air Force in 1994 (maintaining only limited participation in SBP to do so) Until very recently, I simply continued premium payments at the opening level ($250/month). Now, I am trying to understand more about the policy I own and what my options might be, after becoming aware of the high investment costs, high & increasing insurance cost, and the possibility of the policy lapsing.

Here's the info I have:
- Wall Street VUL 220, from Hartford (now Prudential), purchased in July 1994
- basic face amt: $400K
- current cash value = cash surrender value = $88K
- current death benefit: 400K
- death benefit option: level
- insured issue age: 48, male (current age 69)


Here's an explanation of my situation from my "advisor" (which I could have used many years ago) and an illustration based on doubling the premium he sent about a month ago. Helpful?
As you age, the gap between today, and your expected time of death shortens; therefore, the cost of the mortality “premium” inside the policy increases. When you are young, mortality expense inside the policy is small, and as you age, it increases. The objective of insurance is to provide money to the beneficiary should death come in the early years. Insurance by itself is not an investment---it’s to offset risk, so the assumption is that if a person lives, they are able to create wealth, which offsets the need for insurance at the older ages. That’s where the “buy term and invest the rest” theory comes from. That being said, the type of policy you have is a combination of term insurance (low cost coverage), and an investment (the subaccounts). Properly funded, this type of policy can be a good investment if the stock market co-operates like it did since mid- 2009. On the contrary, ’07 and’08 were not good for lump sum dollars sitting in the investment side, but it was good for new money added in because share prices were lower, and one could buy more---if more money was going in above the cost of mortality. As I showed you, you are paying in $2400 per year, and the cost of mortality last year was $7500. That means that the policy cash value must support the shortage of $5100, or you could pay that out of pocket, and not have any drawdown on the cash value. Fortunately, last year the policy made $12,000, so the policy cash value grew by a net $7000. That’s why you can get by with paying in only $2400, but at $2400 it was never an adequate premium input to accumulate a lot of money, but it did its job and got over $80K accumulated. As long as there is any cash value in the policy, it will pay a death benefit to your wife for the full face value of the policy plus any cash value remaining. As an example, if you did not pay anything in to the policy at all, and the mortality expense charge was $8000 per year, the $80,000 cash value would last 10 years, assuming no market value changes up or down. That takes you out to 79. So from the picture I painted of this policy, what you need to do over your lifetime is make sure that the combination of premium input plus stock market performance keeps the cash value in the policy from going to zero.
Image


What are my options? Any recommendations?

Thanks in advance
Professor Emeritus
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Re: Military SBP--Delicate Situation [also bad VUL]

Post by Professor Emeritus »

warthog01 wrote:Hi

My wife and I are on the brink of heading for the divorce courts after 40+ years of marriage. The most contentious issue is the fact that I opted only for a minimum contribution to SBP on retirement. Importantly (I hope) I did not reject the plan completely and have been contributing a small amount since retirement to keep it alive. She, understandably, is highly upset that I opted for a VUL Policy in lieu of SBP and it is not performing well.
I have no expertise in this area but we did have one case at the U where the wife did not "sign off" on the benefits package at retirement and she got her benefits restored.
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BL
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Re: Military SBP--Delicate Situation [also bad VUL]

Post by BL »

Professor Emeritus wrote:
warthog01 wrote:Hi

My wife and I are on the brink of heading for the divorce courts after 40+ years of marriage. The most contentious issue is the fact that I opted only for a minimum contribution to SBP on retirement. Importantly (I hope) I did not reject the plan completely and have been contributing a small amount since retirement to keep it alive. She, understandably, is highly upset that I opted for a VUL Policy in lieu of SBP and it is not performing well.
I have no expertise in this area but we did have one case at the U where the wife did not "sign off" on the benefits package at retirement and she got her benefits restored.
I also believe that she signed off on this choice. Granted there may have been enough paperwork to sign that she didn't even notice (or she simply signed because you asked her to, and she didn't fully understand the consequences, just as you did not.) Hope for another open season, and plan for having the big lump of money needed if it comes. Start a crash savings now. I wish you both good health, a healthy lifestyle, and a looooong life! Also find out what it would take to buy her a SPIA right now and later at immediate annuities.com to insure at least some guaranteed income. I expect it would not come cheap!

By the way, how did you miss the 2005-6 open season? That would have solved your problem (if you had the extra money).
Last edited by BL on Wed May 06, 2015 10:26 am, edited 1 time in total.
dhodson
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Re: Military SBP--Delicate Situation [also bad VUL]

Post by dhodson »

This is likely a situation where getting someone like James Hunt to evaluate the policy for I think he charges 100 buck would be a good idea.

Keep in mind with any UL, the cost of insurance rises with age. The only way to make this work at all is to keep it in force until death. Taking loans has costs and can increase the risk that the policy will lapse. The big problem that I think I'm gathering from your post is that you don't need a permanent death benefit but need retirement income. It will be "easier" to keep this in force until death if your health isn't so good or has deteriorated significantly since purchase and "harder" if you are super healthy and wont have any disposable income to keep it afloat in retirement if the underlying investments don't do so well as insurance costs rise.
2cents2
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Re: Military SBP--Delicate Situation [also bad VUL]

Post by 2cents2 »

I realize this is an old thread so it might not be relevant to the original poster at this point, but there is a SBP open season that opened 23 Dec 2022 and closes 1 Jan 2024.


"The SBP Open Season allows for retirees receiving retired pay, eligible members, or former members awaiting retired pay who are currently NOT enrolled in SBP or RCSBP (Reserve Component Survivor Benefit Plan) to enroll. "

Here are a couple of links:
https://www.dfas.mil/RetiredMilitary/pr ... -NDAA2023/
https://www.dfas.mil/RetiredMilitary/ne ... 2-SBPOS23/
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