Retirement & Financial Planning Report

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In federal retirement, there is a little-known provision of law that will let you provide a survivor annuity to anyone who has an “insurable interest” in you–a person who might reasonably be expected to derive a financial benefit from your continued life.

Obviously, that would include your current spouse. But it could also apply to a blood or adoptive relative closer than a first cousin (such as a child), a same-sex domestic partner who meets certain qualifications, a former spouse/qualifying partner, someone to whom you are engaged to be married or enter into a qualifying partnership, or someone with whom you would be considered to be in a common-law marriage in a place that recognizes such arrangements.

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Further, if the person you want to provide a benefit for isn’t on the list above, you can establish an insurable interest by submitting affidavits from one or more people who have personal knowledge of your relationship. They’d need to confirm your 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. You’d also need to prove that you’re in good health by having a medical exam, and then having the report signed and dated by a licensed physician.

How much the benefit will cost you depends on two things: the difference in ages between you and the person you want to get the benefit (and the amount of your annuity that’s available to be used as a base; that could be reduced if there is anyone else who is entitled to a survivor benefit, for example, a current or former spouse).

Here’s a table that can help you to figure out how much your base annuity would be reduced if you elect 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 than 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

The insurable interest annuity would be 55 percent of that amount, under either FERS or CSRS.

Of course, there are other kinds of benefits that may be provided for a non-spouse, for example, the proceeds of your Thrift Saving Plan account and your Federal Employees Group Life Insurance. And they can receive those benefits as long as someone else doesn’t have legal title to them. Just remember to fill out designation of beneficiary forms to make sure that the money goes where you want it to go.

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