Making preparations to care for your loved ones after you take your final breath is never an easy topic – but FEGLI or other Federal Life Insurance may be able to help make it a bit less frightening. But ensuring your family is able to sustain their standard of living after you’re gone is an essential conversation. However, choosing the correct life insurance can be an overwhelming task. Knowing the ins and outs of the Federal Employee Group Life Insurance (FEGLI) will help you chose the path best for you and your family.
Let’s start with the most obvious question, how much insurance do I need to protect my family for years to come? You many begin to think to of the life milestones that come with a hefty bill: paying for the funeral, college for your children, paying off the mortgage, miscellaneous debt and supplement income for your spouse to determine how much insurance you will need to protect your family. If you have a young family, generally 10-12 times your salary will protect your family’s standard for living for many years to come.
While there are a number of different life insurance policies, the FEGLI utilizes the group term policy. A group term policy covers enrollees for a set amount, or a multiple of their salary, for as long as the employee is employed and pays the premium. FEGLI also does not require enrollees to take a medical examination or limit participation; making this an accessible option for individuals with existing health conditions, poor driving records or dangerous job positions.
Federal employees are automatically enrolled in the basic FEGLI plan, which will cover the federal employee’s salary with an additional $2,000; this is partially supplemented by the federal government. As for Postal workers, the United States Postal Service will supplement the coverage and also doubles the death benefit for employees under the age of 35 free of charge. On top of this, employee have the choice to pick “Option A,” which adds a lump sum of $10,000 to the policy, or “Option B,” which allows employees to a multiple of their salary to the policy, up to five times their annual income, and lastly “Option C,” which provides some protection for the employees spouse and dependents in multiple of $2,500 and $5,000. The FEGLI is also an attractive option for many employees due to its fixed rate; unless an employee has picked “Option B,” then the rate will gradually increase as each new age bracket is entered into.
While you and your family’s needs will change as time passes, there are only certain times that employees are allowed to increase or change their coverage. When an employee first in-processes into the system they can set up FEGLI, when an employee marries or has a child and during the employee open season. However, decreasing or eliminating your coverage can be done at any time.
FEGLI also offers options such as taking reduced amounts in retirement. Employees that carry FEGLI coverage until retirement are eligible for the 75 percent reduction option. Meaning, employees will have a policy that has a face value of 25 percent of their ending Basic benefit plan. This will allow the employee to maintain coverage for the rest of their life, but not have to worry about the paying the premium after the age of 65. This can be useful in providing a benefit to cover final expenses at no cost to the federal employee retiree. If you designated an assignee, the assignee has the right to change an employee’s election to the maximum 75 percent.
While FEGLI seems like a straight forward and accessible answer for many, there have been a few recent policy changes that enrollees need to be aware of. Federal employees who may be in unfortunate position to qualify for living benefits need to be aware that the new policies are not the same for active employees and retirees.
Both active and retired employee are deemed eligible to receive a lump-sum living benefit from FEGLI if they present a documented prognosis stating the employee is terminally ill and is not expected to live longer than nine months.
Active employees have the options to either receive a partial benefit in multiples of $1,000 or the total amount of their Basic policy in a lump-sum. If an employee retires, the amount of Basic Life insurance payable after the employee’s death is dependent on the Living Benefits an active employee received initially. Annuitants only have the option to receive a lump-sum benefit.
In contrast, retirees who elect to receive the Living Benefit will no longer be eligible for the Basic life insurance following their demise. Upon receiving the Living Benefit, the premium for the life insurance will no longer be charged to the retiree.
In all cases, active employees and retirees who receive living benefits will still have any optional life insurance available to them and their family.
Especially when a federal employee is just starting out FEGLI offers an affordable and accessible coverage for federal employees to obtain financial protection for themselves and their loved ones. But it always a good idea, that as an employee ages, they begin to consider other Life Insurance options – outside the FEGLI system. Compare your FEGLI coverage with outside companies – you might find a much less expensive plan.
