Federal Employees Group Life Insurance (FEGLI), the government’s group term life insurance benefit
program, will offer an open season this year between Sept. 1 and Sept. 30. During open season, qualified
candidates can sign up for new or additional coverage without being subject to medical underwriting — a
review of their medical records. The only hitch is that the new coverage will not go into effect until
September 2005.
FEGLI offers employees the following coverage options:
- Basic insurance. This provides a death benefit equal to annual basic pay rounded up to the next $1,000 plus $2,000. The Basic insurance death benefit is doubled for employees age 35 and younger at no additional charge. This free added benefit is reduced by 10 percentage points each year until age 45, when the extra benefit is eliminated. Basic insurance is usually provided automatically and is required to enroll in any of the other options. You may waive Basic insurance. The cost is 32.5 cents per month for each $1,000 of benefit.
- Option A-Standard. This provides a $10,000 death benefit for which you pay the entire premium. The
cost ranges from 65 cents per month to $13 per month, depending on your age. - Option B-Additional. This provides a death benefit equal to one, two, three, four or five times your
annual basic pay rounded up to the next $1,000. The cost of this coverage ranges from 6.5 cents to
slightly more than $3.96 per month for each $1,000 of benefit, depending on your age. - Option C-Family. This provides death benefits equal to between $5,000 and $25,000 for your spouse
and between $2,500 and $12,500 for each eligible dependent child. Option C is a package and must be purchased for all eligible members of your family. The cost ranges between 59 cents per month and $65 per month depending upon your age and the amount of insurance you select.
Retirees pay different rates for many FEGLI options.
With a combination of these options, you can provide life insurance benefits equal to a maximum of about
seven times your most recent annual basic pay up to age 35, and up to about six times your basic pay by
age 45. It is then possible, under the right circumstances, to maintain this level throughout the rest of your
life. The only mandatory reduction is to the $10,000 Option A benefit, which is reduced 2 percent per year
for retirees, starting at age 65, until it reaches $2,500.
There are a number of potential advantages and disadvantages to the FEGLI program. FEGLI might be
the only place to obtain life insurance for employees or their family members who have health or lifestyle
issues that prevent them from qualifying for private policies. This advantage is only available at key times,
including open season.
FEGLI also allows you to continue term life insurance coverage at controlled rates regardless of your age.
The rates are uniform after age 65 for Basic and after age 80 for Options B and C. This is in contrast to
private term insurance with rates that are rarely level after age 75. This might be important to anyone
expecting to need life insurance coverage late into their lives.
Another nice FEGLI feature is that, since the amount of insurance provided is indexed to your earnings,
your coverage will automatically increase with your pay without further medical underwriting. This is
convenient because the amount of life insurance needed often tracks directly with the earnings it is
intended to replace if lost.
FEGLI also allows retirees to automatically reduce the amount of their insurance after age 65 — when life
insurance needs typically decrease or cease altogether. This also helps offset the age-related premium
increases that become more severe as you age.
There are some weaknesses in the FEGLI program, however. The total amount of insurance available
through FEGLI may be insufficient since it is not uncommon for life insurance needs to be 15 times
annual income or more during earning years.
FEGLI coverage suffers from the same weakness that plagues all employer-sponsored group term life
insurance — it terminates if you leave or lose your job before retirement. While you have the option of converting the coverage to a private policy, this is rarely as attractive an option as a separate, fully
underwritten private policy.
Also, depending upon your age and health characteristics, FEGLI can be relatively expensive when
compared with private term-insurance options. Depending upon your needs and your circumstances,
private life insurance may provide an attractive alternative to FEGLI.
There are private term policies available that guarantee your premiums to remain constant for as long as
10 to 30 years, depending on your age. These policies may be serious contenders against FEGLI if the
guarantee period is fairly certain to cover the period when you’ll need the coverage. Most private policies
also allow you to incrementally reduce your coverage in the future without penalty.
It’s probably wise to do a little homework or have a competent insurance broker help you evaluate your
FEGLI and private insurance options. It’s important to get started as far in advance of FEGLI open season
as possible, since you can’t be sure that a private policy will be available at a quoted rate until the
application and underwriting process is complete. In the best cases, this will take weeks; in the worst,
months.
Written by Mike Miles
For the Federal Times
Publication August 23, 2004