Welcome back to our ongoing series on survivor benefits! In this installment, we’ll delve into how insurable interest survivor benefits are calculated and who is eligible to receive them.
Calculating Insurable Interest Survivor Benefits: Insurable interest survivor benefits are provided by reducing the retiree’s annuity. This means that the retiree’s monthly annuity payment will be less than the full amount they would have received if they had not elected to provide an insurable interest survivor benefit. The reduction is calculated based on the age difference between the retiree and the named person as follows:
- If the named person is older, the same age, or less than 5 years younger than the retiree, the reduction is 10 percent.
- If the named person is 5 but less than 10 years younger than the retiree, the reduction is 15 percent.
- If the named person is 10 but less than 15 years younger than the retiree, the reduction is 20 percent.
- If the named person is 15 but less than 20 years younger than the retiree, the reduction is 25 percent.
- If the named person is 20 but less than 25 years younger than the retiree, the reduction is 30 percent.
- If the named person is 25 but less than 30 years younger than the retiree, the reduction is 35 percent.
- If the named person is 30 or more years younger than the retiree, the reduction is 40 percent.
Ending of Insurable Interest: The insurable interest automatically ends if the named person dies, if the retiree marries the named person and elects to provide a spousal benefit, or if the named person is the retiree’s spouse and the retiree changes their election to provide a spousal survivor benefit.
Surviving Spouse Benefits: Surviving spouses may be eligible for a monthly payment if the retiree elected a reduced annuity to provide the benefit. To qualify, the surviving spouse must have been married to the retiree for at least 9 months. A survivor annuity may still be payable if the retiree’s death occurred before 9 months if the death was accidental or if there was a child born of the marriage to the retiree.
A court order awarding a former spouse a survivor annuity may prevent the surviving spouse from receiving the portion of the annuity awarded under the court order. However, if otherwise eligible, the surviving spouse can receive the complete annuity if the former spouse loses eligibility for benefits.
If no survivor annuity is payable upon the retiree’s death, any remaining portion, representing either the remaining annuity and/or retirement contributions not paid to the retiree, is payable to the person(s) eligible under the order of precedence.
Stay tuned with Pathfinder Retirement for the next installment of our series, where we’ll continue to explore survivor benefits in more detail.