Option B coverage in the Federal Group Life Insurance Plan can be fully kept after retiring from government service, but it gets costly as you get older.
Once employed by the federal government in a position that is eligible for FEGLI coverage, a new hire is automatically enrolled in the Federal Employee Group Life Insurance (FEGLI) program with “Basic” coverage. There are also three optional types of coverage under FEGLI that can be added onto FEGLI Basic but cannot be held separately from the Basic life insurance benefits. There are many differences between FEGLI Basic and the three add-on options, but the following three are some of the most important to keep in mind:
- While any type of FEGLI coverage can be waived or dropped at any point, only FEGLI Basic can be enrolled (or re-enrolled) in whenever a federal employee wishes. Attaining (or re-enrolling in) the other three options can only be done at certain points throughout federal service. And remember, you can’t be covered by any additional FEGLI options without also keeping FEGLI Basic.
- The employee pays the full premium amount for the Optional coverages. With FEGLI Basic, the government will pay 1/3 of the cost, leaving the employee to pay the remaining 2/3.
- The cost of FEGLI Basic is the same for all FERS and CSRS employees or annuitants. Alternatively, the cost for the optional coverages are dependent on the insured individual’s age.
How FEGLI Option B Works
Along with Options A and C, there is also FEGLI Option B. A federal employee or annuitant covered by this FEGLI option has the following life insurance benefits on top of their Basic benefits: dollar amount equal to their “SF-50” salary after applying one of the following multipliers: x1, x2, x3, x4, or x5. The numerical product that results from multiplying the annual salary by the chosen multiplier is then rounded up to the nearest $1000 and then another $1000 is added to that.
For those paying Option B premiums, age is a huge factor in determining the cost. Here are the FEGLI Option B premium rates, effective October 1, 2021:
|Age Range||Cost per $1000 of Coverage (biweekly)||Increase from Previous Age Range|
|Under Age 35:||$0.02||--|
For example, $100,000 of FEGLI Option B insurance benefits at age 35 would cost $2.00 every two weeks. That same amount of insurance benefits at age 81 is going to cost $288.00 biweekly. The higher premiums after age 65 can be avoided by either dropping the coverage while in-service or retiring and choosing the “reduced coverage option.” Note the above premiums are for employees who are still working. If you’re retired and have not chosen “reduced coverage,” the monthly premiums are as follows:
|Age Range||Cost per $1000 of Coverage (monthly)||Increase from Previous Age Range|
|Reduced Benefits in Retirement, any age||Free*||---|
*When claiming retirement benefits, a FERS or CSRS annuitant with FEGLI Option B coverage can choose “reduced” coverage at no further cost, or keep the optional insurance in place by paying the applicable premium costs. The choice that incurs no future cost can only be selected if the aspiring retiree has the FEGLI Option B insurance for at least five straight years prior to their retirement date, still holds the Option B insurance on that same date, and there is no court order from a divorce stipulating that Option B must be maintained, unreduced, even in retirement.
How Option B Stings
The result of no longer having to pay the premiums is the potential benefit amount decreases by 2% each month. The FEGLI Option B coverage is automatically dropped after 50 months, or when the benefit amount hits zero, whichever happens first.
If you don’t elect the reduced benefit choice at retirement, going forward you can only drop Option B or keep paying the increasing premium costs. The coverage reduction cannot be selected after you have already entered retirement and chosen to keep Option B fully in place. If a federal retiree is not anticipating the dramatic price increases that occur every five years, they can be blindsided by them. And only then, when it is too late, is it realized that choosing to gradually reduce coverage would’ve been a better choice as such may have still provided additional coverage at the same point in time, albeit diminished, than having to drop the life insurance altogether when it became too costly.
Until Next Time,
**Written by Benjamin Derge, Financial Planner, ChFEBC℠ The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.