The Federal Employee Group Life Insurance (FEGLI) program – here’s a list of fast facts that you should keep in mind.
Learn how to get the most out of your FEGLI coverage! Attend our next no-cost webinar on FEGLI and Life Insurance
1. What is the FEGLI Program?
The Federal Employee Group Life Insurance (FEGLI) program was started in 1954 when it was signed into law by President Eisenhower. The FEGLI program is the largest group life insurance policy in the world, providing coverage for at least 4 million current and former federal employees. It is composed of “Basic” insurance and then three types of “optional” coverage – parts A, B, and C (which were added starting in 1968). Parts A and B both provide additional life insurance for the covered fed while part C provides coverage for immediate family members. Living benefits can be accessed from Basic FEGLI should the covered individual be diagnosed with a terminal illness.
2. Costs and Coverage
For basic FEGLI, the death benefit provided to beneficiaries equals the amount of the federal worker’s annual salary rounded up (never down) to the nearest thousand plus an additional $2000. 2/3 of the premium for basic FEGLI is deducted from a federal employee’s paycheck with 1/3 paid by the government. FEGLI A, B, and C premiums are paid entirely by the covered individual. Option A adds $10,000 to basic coverage. Option B provides insurance that equals the employee’s salary multiplied by 1, 2, 3, 4, or 5. Lastly, Option C covers spouses and dependents aged 22 or younger, up to $25,000 for a spouse and up to $12,500 per dependent. All three of these options cost less for younger employees.
3. Eligibility and Changing Coverage
Almost all civilian workers for the federal government are eligible for at least FEGLI basic. Corporate employees working for the Farm Credit Administration, those in temporary federal roles, or people working as overseas teachers paid by the Department of Defense are the only three categories within the federal workforce that are not covered by the life insurance program. For those who are eligible, they can enroll in FEGLI coverage, or add additional coverage, when they are hired, rehired after an absence of 180 days or more, or within 60 days of experiencing a “qualifying life event” (QLE). These events include marriage, divorce, death of a spouse, and the birth/adoption of a child. While dropping FEGLI coverage is relatively easy and can be initiated at any time, adding FEGLI coverage can only be done when hired, through a QLE, during the rare “open seasons” for FEGLI (last one occurred in 2016), or by undergoing a physical and receiving your physician’s approval.
4. FEGLI in Retirement
When it comes to keeping your FEGLI policy post-retirement, and even for those still working after age 65, it is important to remember that the group life insurance becomes much more expensive. However, in retirement, federal annuitants can choose to take reduced coverage for a smaller premium than what their full coverage would cost. For FEGLI basic specifically, an individual could keep their life insurance in whole at the full price, reduce the coverage by 50% for half the cost, or 25% of basic coverage can be kept in retirement at no additional cost. Therefore, there is no reason to completely drop FEGLI basic upon retirement. Also, for FEGLI option B in particular, the premiums start to spike starting around age 60, for both working and retiring feds. Every five years, the premium costs grow drastically. For example, in 2021, $100,000 of FEGLI B insurance meant a $2.00 premium every 2 weeks for a 35-year-old. That same amount of coverage resulted in a $288.00 biweekly payment due for a federal retiree aged 81 or older.
5. Private Alternatives
There are two main reasons that a federal employee might want to consider a private life insurance policy over keeping their FEGLI coverage. The first reason revolves around personal health. Because the “g” in FEGLI means “group,” this signifies that those in the federal workforce who participate in FEGLI are all deemed one entity when actuaries calculate premium costs. Age alone determines one’s premium amount. Health is an individual’s concern only when they are trying to obtain coverage through the physician approval process. Essentially, those with healthier lifestyles and less medical risk are grouped in with feds who live riskier lives health-wise and have more medical concerns, such as smokers. Those on the healthier end of the spectrum might be better off in terms of premium cost if they drop FEGLI and purchase a private life insurance policy from an outside company. The second reason a private policy might be a good idea pertains to the rising costs in retirement. Purchasing from a private insurance provider before premiums start to skyrocket around age 65 will typically result in a lower total cost for an equal or higher amount of life insurance coverage.
If you’d like to dive into more detail about FEGLI, check out this page. On that page, you can also register for the next FEGLI webinar with Ed Zurndorfer. It’s never too early (or too late) to learn about your federal benefits and start making a plan! For an even deeper dive into your retirement planning as a federal employee, check out our entire (no-cost) webinar series.
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.