Retirement & Financial Planning Report

In addition to the standard survivor annuity options available to those retiring, another, more rarely used, option exists: the insurable interest annuity.

That option could be of interest to you for example if you are not married but have someone–a child, most commonly–who would financially benefit from your remaining alive. It also can be used for example to provide for a current spouse when a court order already has designated a survivor benefit for a former spouse. However, the reduction in your own annuity can be substantial, far in excess of the cost of providing a regular survivor annuity.

Among those who are presumed to have such a financial interest in you is a current spouse, a former spouse, a blood or adoptive relative closer than first cousin, a person to whom you are engaged to be married, a same-sex domestic partner meeting certain standards, or someone with whom you are living in a relationship that would constitute a common-law marriage in a jurisdiction that recognizes such a marriage.

If there is someone other than one of these to whom you would like to provide an insurable interest annuity, you’d have to provide an affidavit from one or more people who have personal knowledge of that financial dependency.

The rules for computing the amount and cost of an insurable interest annuity differ from those governing a regular survivor annuity. The amount the designee will receive is 55 percent of your reduced annuity, under either CSRS of FERS. The reduction in your annuity is computed as follows:

10 percent if the person is the same age, older than, or less than 5 years younger than you;
15 percent if 5 but less than 10 years younger;
20 percent if 10 but less than 15 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; and
40 percent if 30 or more years younger than you.