While non-spouses may not be eligible for the FERS survivor benefit, there exists an alternative solution for those with financial dependents – the Insurable Interest Survivor Benefit.
Understanding Insurable Interest
In the realm of insurance, “insurable interest” signifies someone who reasonably expects financial benefits from your income. As per the OPM website, an insurable interest is established when beneficiaries include:
- 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, qualifying as a common-law marriage in a recognized jurisdiction
Establishing Insurable Interest Assumptions
Should you wish to name a beneficiary not covered by the above categories, submitting affidavits from individuals knowledgeable about their insurable interest is necessary. These affidavits should establish the:
- Relationship between you and the named beneficiary
- Extent of financial dependence on you by the named person
- Reasons why the named person could reasonably expect financial benefit from your continued life
Consider Alternatives
Rather than opting for an Insurable Interest Survivor Benefit, you might explore designating a non-spouse dependent as the beneficiary for your Thrift Savings Plan (TSP), a life insurance policy, or a Lifetime Annuity available from an insurance carrier.
Calculating the Insurable Interest Survivor Benefit
The cost of this benefit depends on the age difference between you and the named beneficiary, as well as the portion of your annuity available as a base. The calculation varies if a spouse or ex-spouse is entitled to a benefit.
The Insurable Interest annuity provides 50% of the chosen dollar amount and reduces your annuity by:
- 10% if the survivor is the same age, older, or less than 5 years younger
- 15% if 5 but less than 10 years younger
- 20% if 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
Is It Worth It?
Considering the age-based reduction in FERS annuity, the Insurable Interest Survivor Benefit may become financially burdensome. Exploring alternatives such as naming a non-spouse dependent as a beneficiary for your TSP, life insurance, or a Lifetime Annuity from an insurance carrier may be a more feasible option.
Prioritize understanding your retirement options by connecting with an FRC® trained advisor before making any decisions.
