A Closer Look At The Insurable Interest Annuity Option

For those retiring there may be more than just the standard annuity options available. There exists another rarely used option: the insurable interest annuity.

If you are not married but have a child or someone who would financially benefit from your being alive, this option may spark your interest. When a court order has already appointed a survivor benefit from a former spouse, it may also be used. The decrease from your annuity can, unfortunately, be substantial. Far above the cost of a standard survivor annuity.

A current spouse is also assumed to have a financial interest in you, as well as a former spouse, an adoptive or blood relative closer than a first cousin, a same-sex domestic partner (meeting certain standards), the person to whom you may be engaged to be married, or someone you are living in a relationship that could fall under common law marriage in a jurisdiction that recognizes common law marriage.

Should there be a person other than one of those above to whom you wish to provide an insurable interest annuity, you would need to submit an affidavit from one or more persons who have personal knowledge of that financial dependence. Computing the amount and cost of an insurable interest annuity has rules that differ from those governing standard survivor annuities. The designer will receive an amount totaling fifty-five percent of your reduced annuity under either FERS or CSRS. The reduction of your annuity computes as seen below:

10 % if the person is the same age, older than, or less than five years younger than you;


15 % if 5 but less than 10 years younger;

20 % if 10 but less than 15 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; and

40 % if 30 or more years younger than you