FEGLI is a group-term life insurance program for federal employees, retirees, spouses, and their children.
FEGLI Basics: What is the Federal Employees’ Group Life Insurance program?
Almost everyone needs life insurance, and there are good options in selecting the amount of life insurance that is right for you through the Federal Employees’ Group Life Insurance (FEGLI) Program. The Office of Personnel Management (OPM) controls the Program and sets the premiums. FEGLI is group-term life insurance. FEGLI builds no cash value, and no loans can be taken out against your FEGLI insurance. FEGLI offers Basic insurance and three types of Optional insurance.
Basic insurance is provided to all eligible employees who are automatically enrolled unless they waive this coverage. The government pays one-third of the premium (the US Postal Service pays the entire premium for its employees), and the employee pays two-thirds of the cost of Basic insurance. Basic insurance coverage is determined in one of two ways and covers your life for whichever is greater. The first takes the employee’s current annual salary, rounds it up to the next $1,000, and then adds $2,000 for the total death benefit. The second way is through a minimum amount of coverage, which is $10,000. Example: An annual salary of $51,700 would provide FEGLI coverage of $54,000.
Optional insurance gives the employee the option to purchase additional levels of coverage. Employees are not automatically enrolled in the Optional plans as they are with the Basic insurance. Instead, they must specifically elect the types of Optional insurance within 60 days of becoming eligible. Employees pay the full cost of the insurance selected and must have the Basic insurance to elect any Optional insurance.
Option A – Standard – Covers your life for an additional $10,000 over the Basic insurance.
Option B – Additional – Covers your life for one, two, three, four, or five multiples of your annual basic pay rounded up to the next $1,000.
Option C – Family – Covers the lives of your spouse and eligible dependent children. It comes in one, two, three, four, or five multiples of coverage. Each multiple equals $5,000 for a spouse and $2,500 for each eligible dependent child.
Most Federal employees, including part-time employees, are eligible for Federal Employees’ Group Life Insurance (FEGLI). Participation is entirely voluntary. If you are eligible, however, you are automatically covered under Basic insurance unless you waive this coverage. You will have Optional insurance only if you elect it. Remember, there are strict time limits to elect Optional insurance.
Other Things You Should Know
Younger employees are automatically covered by an additional Basic insurance provision known as the “Extra Benefit” at no additional cost. This doubles the amount of the Basic insurance payable to those 35 and under. The benefit decreases each year by 10% beginning on the employee’s 36th birthday until age 45. After age 45, there is no Extra Benefit.
A 34-year-old with an annual salary of $45,800 and a Basic Insurance Amount (BIA) of $48,000 has coverage of $96,000.
A 40-year-old with an annual salary of $62,400 and a BIA of $65,000 has coverage of $97,500.
There are no regularly scheduled open seasons for FEGLI. Open seasons are infrequent and only held when specifically designed by OPM. They are NOT held annually, as is with the Federal Employees Health Benefits Program, the Federal Flexible Spending Account Program, and the Federal Employees Dental and Vision Insurance Program. Therefore, employees should carefully consider their situation before dropping any coverage because re-enrolling is difficult.
If employees or annuitants are covered by FEGLI Basic insurance, are terminally ill, and are expected to live nine months or less, they can elect to cash in their Basic coverage. This benefit is paid to the employee or annuitant instead of a survivor or other beneficiary. Living benefits can only be used once and cannot be retracted once made.
Basic Insurance in Retirement
When you retire, you are eligible to continue Basic insurance if you meet all the following requirements:
- Retire on an immediate annuity.
- Enrolled in FEGLI on the date of retirement.
- Have been insured for the five years of service immediately preceding retirement or since the first opportunity to enroll.
If you continue your Basic insurance, you must choose one of the three “reduction” options you want to keep after age 65. The 75% reduction is the default option if you do not choose one at retirement. Retirees will continue to pay the same premium they did as employees until they reach age 65.
- If you choose the 75% Reduction when you turn 65 or retire (whichever is later), your Basic insurance coverage reduces by 2% of the BIA each month until the amount has been reduced by 75%. The remaining 25% of the BIA is payable as a death benefit when the reduction is complete. No premiums are paid after age 65, but the death benefit lives on. Therefore, as one approaches retirement, it is generally not a good idea to drop FEGLI Basic because of the 75% Reduction benefit.
- If you choose the 50% Reduction when you turn 65 or retire (whichever is later), your Basic insurance coverage reduces by 1% of the BIA each month until the amount has been reduced by 50%. The remaining 50% of the BIA is payable as a death benefit when the reduction is complete. Premiums will need to be paid after age 65 to keep the insurance in force at the 50% level.
- If you choose No Reduction, your Basic insurance coverage does not reduce when you turn 65 or retire (whichever is later). The full BIA is payable as a death benefit, and premiums increase with this choice.
Optional Insurance in Retirement
The amount of your Optional insurance in retirement depends on the options you had when you separated as an employee. This amount continues until you reach age 65 unless you elect No Reduction (for Option B and Option C only.)
Option A – Standard – Retirees will continue to pay increasing premiums until age 65. The insurance value will drop by 2% each month until it reaches 25%. There is no cost to the retiree after age 65, and there is “No Reduction” for Option A.
Option B – Additional – Retirees can elect how many Option B multiples they want in retirement and can elect Full or No Reduction of each multiple. With the “Full Reduction,” the coverage begins to decrease at age 65 by 2% per month until it is completely gone, and there is no premium after age 65. In the “No Reduction” election, the coverage value will not be reduced, and premiums must continue to be paid beyond age 65. Premiums increase every five years, and this cost can be prohibitive.
Option C – Family – Retirees can elect how many Option C multiples they want in retirement and can elect Full or No Reduction of each multiple. With the “Full Reduction,” the coverage begins to decrease at age 65 by 2% per month until it is completely gone, and there is no premium after age 65. In the “No Reduction” election, the coverage value will not be reduced, and premiums must be paid beyond age 65. Premiums increase every five years and can become expensive at higher ages.
Is there an alternative to the rising costs of FEGLI in retirement?
A fundamental financial principle is owning life insurance to protect you and your loved ones. Unfortunately, the costs of FEGLI increase significantly with limited coverage options in retirement. However, there are alternative solutions that are more cost-effective and may be a better fit for your retirement needs.
Talk with us about solutions that will help you save money with FEGLI and give you more control.