Understanding Survivor Benefits for Non-Spouse Dependents

While non-spouses may not qualify for the FERS survivor benefit, there’s an alternative avenue for those with financial dependents – the Insurable Interest Survivor Benefit.

Understanding Insurable Interest

In the insurance realm, “insurable interest” refers to someone who expects financial benefits from your income. According to the OPM website, insurable interest can be 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

If you wish to designate a beneficiary not covered by the above categories, affidavits from individuals knowledgeable about their insurable interest are required. 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

Exploring Alternatives

Instead of opting for an Insurable Interest Survivor Benefit, consider designating a non-spouse dependent as the beneficiary for your Thrift Savings Plan (TSP), a life insurance policy, or a Lifetime Annuity 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.