Expert's View

Having written two straight columns about survivor annuities, it occurred to me that you might not be aware of another kind of annuity that a retiree can provide. It’s called an insurable interest annuity.


Who can receive one?

You could provide one to 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 it can be provided to someone who is financially dependent on you and would be expected to derive a financial benefit from your continued life. Among those who are presumed eligible 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.

Further, under a recent White House memo, there would also be a presumption of eligibility for a domestic partner, which is defined 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." The Office of Personnel Management has yet to issue needed rules to carry out that memo, however.

While that’s a pretty inclusive list of those to whom an insurable interest annuity could be provided, if you know of someone who isn’t on the list, you can establish insurable interest by providing affidavits from a few people who have personal knowledge of your relationship. They’d simply need to confirm that relationship, the extent to which the person is dependent on you, and the reasons he or she might reasonably expect to derive a financial benefit if you stayed alive. Technically at least, that might include domestic partners.

How can you qualify to provide one?

Having identified someone to whom you want to provide an insurable interest, there’s one more step in the process. You’ll have to prove that you are in good health, which can be done by getting a medical exam at your own expense and having the report signed and dated by your licensed physician. This is not a requirement for a regular survivor annuity.

How much will my designee receive?

An insurable interest annuity will provide your survivor with a percentage of your basic annuity. That’s 55 percent if you are covered by CSRS or 50 percent if covered by FERS. In both cases, that means there is no choice of differing benefit levels that are offered under standard survivor benefits.

Once you make the election, any cost-of-living adjustment you received between the time you made it and your death will be added on—which does follow standard survivor policies.

What will it cost?

What it will cost you depends on the difference in age between you the person you selected to receive the benefit. The 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

Again, that is a difference from a regular survivor annuity, for which there is no adjustment for age.

Is an insurable interest annuity something that will meet your needs? Maybe yes; maybe no. It’s up to you to decide.