When An Annuity Makes Sense – Kevin Wirth

A vastly underused feature of federal retirement insurance allows you to provide a survivor annuity to a person who has an “insurable interest” in you. That is someone who’s financially reliant on you and may reasonably be expected to gain financially from your continuing existence. That might be a spouse, but more often than not, survivor benefits are granted to spouses under standard spousal survivor benefit policies. In general, an insurable interest annuity delivers benefits to someone else. There’s a presumption of eligibility for blood or adoptive relative closer than a first cousin (like a child), a same-sex domestic partner who satisfies specific requirements, an ex-spouse/qualifying partner, or someone to whom you’re engaged to marry or enter into a qualifying partnership. Furthermore, suppose the intended individual is not on the list above. In that case, you can prove an insurable interest by submitting affidavits from one or more people with intimate knowledge of your relationship. They’d have to confirm your relationship, the level to which the individual relies on you, and the reasons they may expect to benefit if you stayed alive. You’d also have to prove that you are in good health by getting a medical checkup and having the report signed and dated by a licensed physician. Two factors determine the cost of the benefit: 1. The age difference between you and the person receiving the benefit. 2. The amount of available annuity (as a base). This amount may reduce if there’s another person entitled to a survivor benefit, such as a current or former spouse. The table below shows how much your base annuity would decrease if you choose an insurable interest annuity:  10% if the survivor is the same age, older than, or less than 5 years younger
 15% if 5 but less than 10 years younger
 20% is 10 but less than 25 years younger
 25% if 15 but less than 20 years younger
 30% if 20 but less than 25 years younger
 35% if 25 but less than 30 years younger
 40% if 30 or more years younger Under FERS or CSRS, the insurable interest annuity would be 55% of that amount. Note: Other types of benefits, like the proceeds of your Thrift Savings Plan (TSP) account and your Federal Employees’ Group Life Insurance (FEGLI), can also be granted for a non-spouse. They get those benefits as long as no one else has a legal entitlement to them. Just remember to fill out beneficiary designation forms to ensure that the money gets where you want it to go.
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