Though a non-spouse doesn’t qualify for the FERS survivor benefit, if someone else is financially dependent on you, there’s another option: an Insurable Interest Survivor Benefit.
What Does Insurable Interest Mean?
It’s an insurance term that indicates someone who reasonably expects to benefit financially from your income. According to the OPM website, for survivor benefit election purposes, an insurable interest exists when you name any of the following as beneficiaries:
- A spouse
- An ex-spouse
- A blood or adopted relative closer than first cousins
- A person you’re engaged to be married to
- A person you’re in a relationship and living with that would constitute a common-law marriage in a jurisdiction that recognizes common-law marriages
Establishing An Assumption Of Insurable Interest
If you want to name a beneficiary who isn’t on the above list, you’ll need to submit affidavits from one or more people with knowledge of their insurable interest to establish:
- The relationship between the named beneficiary and you
- The extent to which the person named is financially dependent on you
- The reasons why the person named might reasonably expect to derive financial benefit from your continued life
“Instead, you may want to consider naming a non-spouse dependent as the beneficiary of your Thrift Savings Plan (TSP), a life insurance policy, or a Lifetime Annuity you can buy from an insurance carrier.”
How An Insurable Interest Survivor Benefit Is Calculated
The cost to you depends on two factors: the difference in ages between you and the person you’ve named and the amount of your annuity that’s available to be used as a base. This can vary if a spouse or ex-spouse is also entitled to a benefit.
An insurable interest annuity provides 50% of the dollar amount you select and reduces your annuity by:
- 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% if 10 but less that 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
Is An Insurable Interest Survivor Benefit Worth It?
Since an Insurable Interest Survivor Benefit is based on age difference, the reduction in your FERS annuity (pension) may become cost prohibitive. Instead, you may want to consider naming a non-spouse dependent as the beneficiary of your Thrift Savings Plan (TSP), a life insurance policy, or a Lifetime Annuity you can buy from an insurance carrier.
Connect with an FRC® trained advisor to learn more about your options before you retire.
Source: https://www.opm.gov/frequently-asked-questions/retire-faq/post-retirement/what-is-an-insurable-interest-survivor-benefit-election/
