@x999man - please confirm whether the $7.000 is already removed from Box 2a of Form 1099-R each year.  I think that is what you are inferring by stating it is removed from your military pension (pre-tax), but it is not totally clear.

First it is NOT alimony  and if it is already being taken out before taxes you could not deduct it again on your return ... double dipping is not allowed.  And paying a "life insurance policy" (which is basically what it is so that she will continue getting your pension after your death) is never a deductible expense on a return. 

Box 1 (gross distribution) and Boz 2a (taxable income) are the exact same amounts.  It appears the $7000 was taken off the total amount, not taxed, and then the rest was taxed. So the $7000 escaped federal tax. However, even though the $700) was not subject to federal tax, I still lost/paid $7000 of my pension to buy her this annuity/life insurance as per court order of divorce under alimony. Even though the $7000 was not subject to federal tax, I still essentially paid it as alimony in the guise of an annuity/life insurance hybrid. What can you advise? 

Sorry but this was what you agreed to do when you divorced so you must talk to an attorney to get the divorce decree modified if you can. 

Yes I agreed to it, but is the $7000 deductible even though it was not subject to federal tax?

Not sure what your question is at this point.  It's already been established that the $7,000 has not been included in your taxable income, so you don't get deduct it for any reason.

Thanks. I appreciate your response. My problem is solved. 

For retired military who pay for the SBP, the premiums you pay are NOT included in your taxable retirement income. Therefore, you can not deduct it from your taxable income.

I thank you very much.