Expert's View

Changing times need different ways of dealing with those changes. For example, as long as anyone can remember, married federal employees have been able to elect a survivor benefit for their spouses. When the law was drafted, no one gave a passing thought to the possibility of a world in which there would be a significant number of companions, significant others, life partners, etc. However, what they did know was that some single or widowed federal employees might have relatives or care givers who they would like to provide for. While the Congress had no intention of providing a traditional survivor annuity for these folks, they did include language that would allow them to receive another kind of annuity, which could be purchased at retirement. It’s called an insurable interest annuity.

So, what’s does “insurable interest” mean? It means that the person you want to receive the annuity is financially dependent on you and might reasonably be expected to derive a financial benefit from your continued life. Obviously, that would include your current spouse, if a court order blocked him or her from receiving a regular survivor annuity. But it could also apply to a blood or adoptive relative closer than a first cousin (such as a child), a former spouse, someone to whom you are engaged to be married, or someone with whom you would be considered to be in a common-law marriage, but only if the state you live in recognizes them or your common-law marriage occurred in such a state even though you now live somewhere else.

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Now if the person you want to provide a benefit for isn’t among those named above, you can establish an assumption of insurable interest by submitting affidavits from one or more people who have personal knowledge of your relationship. They’d need to confirm your relationship, the extent to which the non-spouse is dependent on you, and the reasons he or she might reasonably expect to derive a financial benefit if you stayed alive. Of course, you’d also need to prove that you’re in good health by having a medical exam, and then having the report signed and dated by a licensed physician.

An insurable interest annuity provides the survivor with 50 percent of the dollar amount you select as a base. How much that will cost you depends on two things: the difference in ages between you the person you want to get the benefit and the amount of your annuity that’s available to be used as a base. The latter will vary depending on whether there is anyone else who is entitled to a survivor benefit, for example, a current or former spouse.

The following table can help you to figure out how much your base annuity would be reduced if you elected an insurable interest annuity:

  • 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 is 10 but less than 25 years younger

  • 25 percent if 15 but less than 20 years younger

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  • 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

So far, I’ve only talked about insurable interest annuities, but there are other kinds of benefits you could provide for a non-spouse; for example, the proceeds of your Thrift Saving Plan account and/or your Federal Employees Group Life Insurance. They can receive those benefits as long as someone else doesn’t have legal title to them. To make sure that these benefits go where you want them to go, remember to fill out designation of beneficiary forms, which are available from your personnel office or on-line at www.tsp.gov or www.opm.gov.