Retirement & Financial Planning Report

At retirement most married federal employees elect a survivor benefit for their spouses. Another option is that any retiring employee (other than someone retiring on disability) can provide for a non-spouse through something called an insurable interest annuity.

To qualify for an insurable interest annuity, the person you want to receive it 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, a same-sex domestic partner who meets certain qualifications, 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).

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Even if the person for whom you want to provide a benefit isn’t one of those mentioned above, you can establish an assumption 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.

Once you’ve established an insurable interest relationship, you’d also need to prove you are in good health. You can do that by getting a medical exam and having the report signed and dated by a licensed physician.

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 table 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

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* 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. At least you should know it’s out there and available if you do.