Life Insurance Options

Last week, we looked at basic coverage options under the Federal Employees Group Life Insurance program. This week, as promised, we’ll go over optional coverage.

FEGLI offers three types of additional coverage:

• Option A (standard optional insurance) has a $10,000 value.
• Option B (additional optional insurance) equals one to five times your annual basic pay (after rounding up to the next $1,000).
• Option C (family optional insurance) provides coverage for your spouse and eligible children. Again, you can choose one to five multiples of coverage. Each multiple is equal to $5,000 (up to a $25,000 maximum) for your spouse and $2,500 (up to a $12,500 maximum) for each eligible child.

Let’s look at each option, and how it relates to your retirement.

Option A

You can keep Option A as you move into retirement as long as you’ve been enrolled for the last five years of your federal career and are retiring on an immediate annuity. After you retire and are older than 65, Option A is free, but the $10,000 benefit will reduce by 2 percent per month until it reaches $2,500. Option A was implemented in 1968, when $10,000 was considered a lot more life insurance coverage than it is today. Its value hasn’t changed in 44 years.

Option B

The value of Option B is based on multiples of your basic pay, up to five times your salary. The amount you carry into retirement is based on your pay rate on your last day of employment and the number of multiples that you’ve had in effect for the last five years of your career. You must retire on an immediate retirement to maintain your insurance.

When you retire, you will be able to choose no reduction or full reduction for each multiple of Option B coverage. So, for example, if you had five multiples of coverage, you could opt to have three with no reduction after you retire and the other two with full reduction. Full reduction means those multiples will be free after you retire and are older than 65, but the value of the coverage will reduce by 2 percent per month for 50 months, at which time the coverage will end. You can cancel or reduce the number of multiples of your life insurance at any time.

Option B starts to become a noticeable withholding from your salary when you reach 50. Then the price increases from 8 cents per $1,000 of coverage biweekly to 13 cents. So, for example, if you have five multiples of $50,000 worth of Option B coverage, at age 49 you would be paying $20 every other week. At 50, the price would increase to $32.50. At 55, the same amount of coverage would cost $57.50 biweekly. There will be additional increases every five years until you turn 80.

Some federal employees have replaced Option B with private life insurance. You may find cheaper rates -- sometimes significantly cheaper -- but there are a few things to know before you cancel Option B:

• To purchase life insurance you must be insurable. Be sure that you will be able to pass the medical underwriting if you are contemplating buying a private life insurance policy.
• FEGLI floats with your salary, so every time you get a pay increase due to a promotion, step increase or basic pay adjustment, the amount of your basic coverage as well as Option B will increase at the same rate.
• FEGLI pays your beneficiary no matter the cause of death -- unless your death was caused by your beneficiary.
• If you are willing to pay the premiums, then you can get Option B for the rest of your life, but it does get very expensive later in life.

Here are some companies that your co-workers have used to purchase life insurance other than FEGLI:

• Worldwide Assurance for Employees of Public Agencies
• SAMBA Term-Life Insurance Plan
• USAA Life Insurance (some products do not require military service or connection)
• National Active and Retired Federal Employees Association
• AARP Life Insurance Program (through New York Life)

Option C

Option C is for spouses and eligible family members. Here’s a link to the rules on who qualifies.

The amount of Option C you carry into retirement is based on the number of multiples you’ve had in effect for the last five years of your career. You must retire on an immediate annuityto maintain your insurance. As with Option B, when you retire, you will be able to choose no reduction or full reduction for each multiple of Option C. If you choose full reduction, those multiples will be free after you retire and are over 65, but the value of the coverage will reduce by 2 percent per month for 50 months, at which time the coverage will end. And you can cancel or reduce the number of multiples of your life insurance at any time.

From ages 45 to 49, Option C costs 63 cents per multiple of coverage biweekly. From ages 50 to 54, it goes up to 94 cents every other week. There are additional increases every five years.

The Future

FEGLI rates can go up, and they can go down. There have been 16 rate adjustments in the program’s 58-year history. Open enrollment periods (during which no underwriting is required) have been infrequent. The most recent was in 2004. The one before that was in 1999.

As a federal employee, you always can use form SF 2822 and get a physical to apply for insurance coverage. If the Office of Federal Employees' Group Life Insurance approves your request, then you are automatically enrolled in basic coverage. If you want optional insurance, you can enroll in Option A or Option B within 60 days of the date of OFEGLI's approval.

You can enroll in Basic, Option A, Option B, and Option C (or increase your current Option B or Option C coverage) upon marriage, divorce, death of a spouse or acquisition of eligible children, within 60 days after such qualifying life events. You need to fill out form SF 2817 and submit it to your human resources office within 60 calendar days after the date of the event.

You also can increase your FEGLI coverage if you are deployed as a civilian in support of a contingency operation, within 60 days of being notified that you have been designated as an emergency essential employee. Here are the details.

One last thing: Be sure to maintain your beneficiary designation for FEGLI throughout your career and into retirement. Marriage, divorce, death, or the birth of a child can cause you to want to change your designation.