Expert's View

As a retiring federal employee, you can elect a survivor benefit for your spouse. In fact, by law you have to do that unless your spouse agrees in writing to less than a full annuity or none at all. But did you know that unless you are retiring on disability, can provide an insurable interest annuity for a non-spouse? Well you can.


Establishing eligibility

To provide an insurable interest annuity, you have to clear two rather low hurdles. First, the person you designate must be financially dependent on you and must be expected to derive a financial benefit from your continued life. While that would include your current spouse, if a court order blocked him or her from receiving a regular survivor annuity, it could also apply to others. For example, 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 common-law marriages or your common-law marriage occurred in such a State but you now live someplace else.

However, even if the person you want to receive the benefit isn’t one of those mentioned above, you can still establish a presumption of insurable interest by submitting affidavits from those who have personal knowledge of your relationship. They’d need to confirm that 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.

Second, you need to prove that you are in good health. You can do that by getting a physical exam and having the report signed and dated by a licensed physician.

Determining the amount and cost of the annuity

An insurable interest annuity provides the survivor with 55 percent of your basic annuity (CSRS) or 50 percent (FERS), increased by any cost-of-living adjustment you received between the time you made the election and your death. How much that reduction in your annuity will cost depends on the difference in age between you the person you want to get the benefit.

The following shows how much your own 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 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

Whether an insurable interest annuity is something that will meet your needs is for you to decide.