Who can claim insurable interest annuity?


In expanding benefits to federal employees’ same-sex partners, President Obama ordered the Office of Personnel Management director to issue a proposed rule to “add a federal retiree’s same-sex domestic partner to the list of individuals presumed to have an insurable interest in the employee.”

What would adding same-sex domestic partners to such a list accomplish? To figure that out, you need to know something about insurable interest annuities.

You probably know that a retiring employee can elect a survivor annuity for a current spouse and may be required to provide one for a former spouse, but you may not know that a retiring employee can provide an insurable interest annuity to someone who would otherwise not be entitled to receive annuity benefits, if that individual has a financial interest in the retiree’s well-being.

Certain people are presumed to have an insurable interest in you: your current spouse where blocked by a court-ordered survivor annuity for a former spouse; a blood or adoptive relative closer than a first cousin; a former spouse; someone to whom you are engaged to be married; or someone with whom you would be considered to be in a common-law marriage in a place that recognizes such arrangements. Obama now proposes to add same-sex domestic partners to this list.

However, it’s been true all along that the presumption of insurable interest can be extended to other individuals who are dependent on you or might reasonably expect to derive financial benefit from your continued life. In these cases, you must submit affidavits from one or more people who have personal knowledge of your relationship with the intended beneficiary of your insurable interest annuity.

If OPM succeeds in adding same-sex domestic partners to the list of those presumed to have an insurable interest, it would simply shift the burden of proof.

When applying for an insurable interest annuity, you’ll need to prove you are in good health, which you can do by having a medical exam. The report of that exam, signed and dated by a licensed physician, must be attached to your retirement application.

How much an insurable interest annuity will cost you depends on two things: the difference between your age and that of the beneficiary, and the amount of your annuity that can be used as a base. The latter will depend on whether anyone else, such as a current or former spouse, is entitled to a survivor benefit.

To compute the reduction in your own annuity, you first need to determine how much of your annuity is available. If there are no other claimants, that would be your entire base annuity before any deductions are taken.

Multiply the figure you come up with by the following percentages:

• 10 percent if the survivor is the same age, older than, or less than five years younger than you.

• 15 percent if five years but less than 10 years younger.

• 20 percent if 10 years but less that 25 years younger.

• 25 percent if 15 years but less than 20 years younger.

• 30 percent if 20 years but less than 25 years younger.

• 35 percent if 25 years but less than 30 years younger.

• 40 percent if 30 or more years younger.

The product will be the amount your own annuity will be reduced. Regardless of the size of that reduction, the survivor benefit will always be 50 percent of the available annuity base. Also, insurable interest annuities are increased by annual cost-of-living adjustments just as other survivor annuities are.

Suppose, for example, a 58-year-old retiring federal employee is single or not required to provide a survivor annuity for a current or former spouse. His unreduced annuity is $60,000. If his same-sex partner is 56, his annuity would be reduced by $6,000 — 10 percent of the $60,000 base annuity. The retiree’s new annuity is then reduced to $54,000. His partner’s insurable interest annuity is $30,000 — half of the $60,000 base annuity.

While an insurable interest annuity can be a good way to provide a survivor annuity to someone who would not otherwise be entitled to one, you need to understand that it won’t provide your survivor with certain other benefits. Most importantly, it won’t entitle him or her to coverage under the Federal Employee Health Benefits Program.


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