Expert's View

Last October I wrote about the definition of those who are eligible for an insurable interest annuity. In the past, you could only elect one either 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 who would 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.

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On March 3, OPM issued proposed regulations to add same-sex domestic partners to the class of persons for which an insurable interest is presumed to exist. The proposed rule, therefore, 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 grant individuals with same-sex domestic partners the same presumption of an insurable interest in the continued life of employees as the class of persons listed in the existing rule.

OPM defined a domestic partner as an adult in a committed relationship, meaning 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.

If you are retiring and want to provide an insurable interest annuity for someone, you’ll have to demonstrate your eligibility to do so. OPM will ask you to provide proof to establish the existence of, or former existence of, your domestic partnership, in addition to evidence of your good health. You can prove the latter by getting a medical exam at your own expense and having the report signed and dated by your licensed physician.

An insurable interest annuity will provide your survivor with a percentage of your basic annuity. That’s 55 percent whether you are covered by CSRS or FERS, with an age reduction. 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.

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The cost to you as an age reduction depends on the difference in age between you the person you elect to receive the benefit. 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

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* 35 percent, if 25 but less than 30 years younger

* 40 percent, if 30 or more years younger

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.