The Insurable Interest Annuity RevisitedPublished: Wednesday, January 02, 2013
Questions have arisen since last July when OPM revised eligibility policies for insurable interest annuities. Let’s begin at the beginning by quoting OPM’s own words in issuing the reg:
The Office of Personnel Management (OPM) is amending its regulations to add same-sex domestic partners to the class of persons for which an insurable interest is presumed to exist. The rule is designed to relieve federal employees with same-sex domestic partners from the evidentiary requirements in existing regulations for persons outside this class. Additionally, OPM is taking this step to recognize that individuals with same-sex domestic partners have the same presumption of an insurable interest in the continued life of employees or Members as the class of persons listed in the prior rule.
Before this, you could only elect an insurable interest annuity to provide for 1) a current spouse when the election of a regular survivor annuity has been blocked by a court order assigning the benefit to a former spouse or 2) someone who is financially dependent on you and would be expected to derive a financial benefit from your continued life. Among those on the original list who still continue to qualify are a blood or adoptive relative closer than a first cousin (such as a child), a former spouse, or someone to whom you are engaged to be married
OPM defines a domestic partner as “an adult in a committed relationship with another adult, including both same sex and opposite-sex relationships.” And committed relationship means “one in which the employee, and the domestic partner of the employee, are each other’s sole domestic partner (and are not married to or domestic partners with anyone else); and share responsibility for a significant measure of each other’s common welfare and financial obligations. This includes but is not limited to any relationship between two individuals of the same or opposite sex that is granted legal recognition by a State or the District of Columbia as a marriage or analogous relationship (including, but not limited to) a civil union.”
If you are retiring and want to provide an insurable interest annuity for someone, you’ll have to provide evidence of your good health. You can do that by getting a medical exam at your own expense and having the report signed and dated by a licensed physician.
The cost to you depends on the difference in age between you the person you elect as a survivor beneficiary. The percentage reduction in your annuity will be:
* 10 percent, if the survivor is the same age, older than, or less than 5 years younger
* 15 percent, if 5 but less than 10 years younger
* 20 percent, if 10 but less that 25 years younger
* 25 percent, if 15 but less than 20 years younger
* 30 percent, if 20 but less than 25 years younger
* 35 percent, if 25 but less than 30 years younger
* 40 percent, if 30 or more years younger
An insurable interest annuity will provide a 55 percent survivor benefit, whether you are covered by CSRS or FERS. Once you make the election, any cost-of-living adjustment you received between the time you made it and your death will be added to it.
Whether an insurable interest annuity would meet your needs at retirement is a personal matter. However, it’s nice to have the flexibility to elect one if the person you want to enjoy the benefit isn’t eligible for a survivor annuity.