FEGLI After Retirement
One of the common reasons people object to purchasing privately owned life insurance is the age old “I have coverage through my job” response. In most cases, this is perilous way of thinking, considering the fact that only government provided life insurance benefits actually allow you to maintain coverage into your retirement years. These are the years of course where death benefits are most likely to be needed and also when the most adverse results (high premiums and application denials) are likely to occur when trying to purchase. Now for those who are lucky enough to have government provided life insurance, also known as the Federal Employee Government Life Insurance program, understanding if you should have a private plan or solely rely on the transition of those benefits becomes much more complicated. It is our wish to help simplify this process.
Every available option for keeping coverage follows a few basic designs:
Paying a rate to keep that coverage based on age, until age 65. At 65 you will either have chosen a retirement option that will have the premiums cease at 65 and coverage begins to decline down to a percentage of original benefit, or will continue after that but at the same or higher premiums as you age.
Premiums are all taken out of your FERS annuity payments, if you delay your annuity than you delay your coverage. If you do not qualify for FERS (10 years of employment) than you do not qualify for retirement coverage.
Your coverage into retirement will only be a reflection of the level of coverage you already had during employment. You must of maintained that coverage for a minimum of 5 years to qualify for retirement coverage.
FEGLI Options
Basic Coverage:
The basic coverage plan under FEGLI allows employees to maintain coverage in equal to their annual salary rounded to the nearest $1,000, plus an additional $2,000. In retirement you can either allow the coverage to decline after age 65 or keep the coverage the same forever.
75 percent reduction: You will pay the same premiums you paid as an employee ($.3467 per $1,000 per month) until you reach age 65. At that point, you would pay no more premiums and the value of your insurance would decline by 2 percent per month until it reaches 25 percent.
50 percent reduction: You will pay a higher premium ($1.0967 per $1,000 per month) until you reach age 65, at which point your premiums will drop to $.75 per $1,000 per month and your insurance value will decline by 1 percent per month until it reaches 50 percent.
No Reduction: To retain the same insurance value you had when you retired, you will pay $2.5967 per $1,000 per month until age 65, when your premium will drop to $2.25 per $1,000 per month. This is the highest costing option.
Option A:
This is a very basic level of coverage for a flat death benefit of $10,000. The premiums on this scale rise as you age on the below schedule;
50 through 54—$2.17 per month
55 through 59—$3.90 per month
60 through 64—$13 per month
65 and over—no charge*
Those who retire with this benefit need to be aware that there is no option to continue this in full coverage beyond age 65. The premiums will end at that age and benefit will begin to decrease down to 25% of the original benefit.
*This feature is in no way connected to your Basic, Option A, or Option B coverage retirement schedule choices. You can be enrolled in all of these plans concurrently, with each continuation option elected differently*
Option B:
This option is often elected as a supplement to the Basic and Option A packages. It is the election of having multiples of salary years in coverage, ranging from 1 to 5 times your annual pay. Once again premiums are age bracketed per $1,000 of benefit based on the following schedule;
50 through 54—$0.217 per $1,000 per month
55 through 59—$0.39 per $1,000 per month
60 through 64—$0.867 per $1,000 per month
65 through 69—$1.04 per $1,000 per month*
70 through 74—$1.863 per $1,000 per month*
75 through 79—$3.90 per $1,000 per month*
80 and over—$6.24 per $1,000 per month*
Option B’s continuation schedule after age 65 is a bit of a combination of Basic and Option A’s. Like Option A you can choose to keep all of your Option B coverage in full, continuing to pay your full premium, or like Basic you can allow the premiums to cease at age 65 and have the benefit decline by 2% monthly until ALL benefit is gone.
All of the post retirement options to keep FEGLI will be made upon retiring. You can not go back and change how the coverage will or will not automatically reduce after age 65 BUT you can at any time reduce the benefit itself or cancel the plan altogether.
Comparing FEGLI to a Private Plan
All of the FEGLI plans are government subsidized, group term plans. This is significant for two reasons. In the younger years of coverage, (30-60) your rates for coverage are well below market prices. This allows you to have a significant portion of coverage for very little premium. However as you can see group term plans do not age well. As you get older these premiums will raise exponentially, and like most other terms have ages (65 for FEGLI) where coverage begins to either reduce or cancel. All the money being contributed gets used just for keeping the coverage, there will be no collection, return of premiums or cash value associated with these plans.
Example: The average retirement age of a federal worker is 58. So if a 58 year old female in good health wanted a life insurance plan for the next 20 years post retirement, she could continue her option B coverage for $500,000. Those prices would be $195 monthly until age 59, $430 monthly from age 60-64, $525 monthly from 65-69, $931 monthly from 70-74 and $1950 monthly for 75-78. A private $500,000 term plan for a 58 year old female in good health is $168 monthly. This premium and death benefit would never change!
The benefit of keeping FEGLI is that if you can not achieve a private plan due to health reasons and do not want to pay the high cost of the traditional whole life convertibility options, you have this guaranteed lower cost coverage. The downside is obviously the rates are well above in your retirement years what a private plan would be, and continue to raise in price and lower in benefit depending on the options you selected.
