Life insurance often plays a critical role in being financially prepared for the future and protecting our families.
But like many of the great benefits that federal employees enjoy, there are a lot of details and nuances that few understand. And many of these details are critical to getting the most out of FEGLI (Federal Employee Group Life Insurance) which is the largest group life insurance program in the world.
This guide is designed to help you understand the most relevant parts of the FEGLI program as well as how you can get the most out of it for you.
Here is a table of contents to skip to the sections that are relevant to you.
When Can You Make Changes to FEGLI Coverage?
Keep Your Beneficiaries Current!
Accidental Death and Dismemberment Coverage
Do You Need Life Insurance?
But wait!! Before thinking about FEGLI or life insurance at all, you should think about exactly what you are insuring against. Some people simply don’t have a need for life insurance. This may be a single person without debts and who has plenty of cash for anything that might come up.
Others with families, debts, and other commitments may want to get life insurance to ensure that they don’t leave a mess for those that they leave behind.
Once you are certain that you need insurance and you have a pretty good idea of how much you need, the next question is where to get it.
Intro to FEGLI
FEGLI (Federal Employee Group Life Insurance) is group term life insurance. This means that you don’t accumulate any cash value (as you might with a personal whole-life policy) and consequently you cannot take a loan from the policy.
The 4 Parts of FEGLI
FEGLI has 4 different parts.
Basic
Option A
Option B
Option C
Basic
When you first start with the federal government you will be automatically enrolled into basic coverage unless you choose to waive it.
Your basic coverage is equal to your annual basic pay rounded up to the nearest $1,000 plus $2,000.
For example, if your basic pay was $97,200 then to calculate your basic coverage amount you would round your pay up to $98,000 and then add $2,000 which would come to a total of $100,000 of coverage.
This basic coverage is the only part of FEGLI that the government helps pay for. For most employees the government pays ⅓ of the premiums and the employee picks up the other ⅔. But if you are a postal employee then The USPS pays 100% of your basic insurance premiums.
Extra Benefits for Basic Coverage
One added benefit of the basic coverage is the extra coverage that you get (for no extra cost) if you are under the age of 45.
If you are 35 or younger than you have 2x the normal basic coverage and this amount slowly goes down to only 1x between age 35 and 45. Once you are 45 or older than you will only have your normal coverage amount.
This chart shows how it decreases over time.
Source: https://www.opm.gov/healthcare-insurance/life-insurance/reference-materials/publications-forms/feglihandbook.pdf
For example, if your basic pay was $97,100 then your normal coverage amount would be $100,000. But if you are age 40 then you would have $150,000 of coverage.
This extra benefit applies only to basic coverage and not to option A, B, or C.
Optional Coverage
When you are first hired, you will not be enrolled into option A, B, or C automatically and that is why they call these parts optional coverage.
Option A-Standard
Option A is also called standard coverage and provides $10,000 worth of coverage regardless of what your salary is.
Option B-Additional
You can get option B coverage for 1, 2, 3, 4, or 5 times your basic pay times rounded up to the next even $1,000.
So if your basic pay is $59,300 then for the purposes of option B coverage you would round up to $60,000 and then multiply that by the multiple that you pick. So you would have $180,000 worth of coverage if you pick 3x.
Note: For basic coverage, your salary is rounded up to the nearest $1,000 and then you add $2,000. For Option B coverage, you do round up to the nearest $1,000 but you don’t add an additional $2,000.
Option C-Family
Option C allows you to get life insurance for your spouse and dependent children. You have the option of getting 1, 2, 3, 4, or 5 multiples of coverage with each multiple being $5,000 for your spouse and $2,500 for each child that is eligible.
For example, if you pick 5 multiples for option C then your spouse would have $25,000 worth of coverage and each eligible child would have $12,500 worth of coverage.
But as the example suggests, you can not elect different multiples of coverage for your spouse and children. Once you pick a multiple then that multiple will apply to both your spouse and children.
Note: Eligible dependent children include those that are unmarried and under 22 years old. Dependent children over the age of 22 may still be eligible if they have a mental or physical disability that existed before they were 22.
Here is a chart that summarizes the 4 different coverages.
When Can You Make Changes to FEGLI Coverage?
You make your FEGLI enrollment decisions when you are first hired and you can decide to cancel your coverage at any time. If you cancel your basic coverage then your optional coverage (options A, B, and C) will automatically be canceled.
In other words, to have options A, B, or C you have to be covered under Basic as well.
And while you can cancel your coverage at any time, there are limitations on how/when you can increase your coverage.
Within 60 days of the following life events you are allowed to elect or increase your coverage without having a medical exam.
-New Child
-Marriage
-Divorce
-Death of a Spouse
If you’d like to increase your coverage outside of a life event then you will have to get a medical exam and be approved for coverage.
FEGLI Open Seasons
You can also make changes to your FEGLI coverage without an exam during a FEGLI open season. The problem is that there are no regularly scheduled open seasons and they don’t happen very often. The last one was in 2016.
How Much Does FEGLI Cost?
The cost of FEGLI will vary based on your age and, whether or not you are retired yet, and what FEGLI options you choose to take with you into retirement.
You can find the current FEGLI rates here.
For those that have substantial life insurance needs, part B is often used. And for those under 45, the rates tend to be very competitive for part B.
But as you get into your 50’s and 60’s, the cost of FEGLI part B starts to increase dramatically. As you can see on the chart below, the premiums skyrocket between ages 45 and 70.
For those who need life insurance and are in good health, it may be more cost effective to find coverage somewhere else as you age. But again, it can be difficult to get back into the FEGLI later so I would be very confident in your decision before you cancel any FEGLI coverage.
The Basic FEGLI coverage, on the other hand, is the coverage that you get automatically as an employee and the government pays for a portion of the premiums. The premiums for this coverage does not increase with age like it does for the other types. Consequently, some employees choose to keep this coverage for much longer than they keep the Option B coverage.
Basic Coverage Premiums per Thousand Dollar of Coverage (as of 2021) for Active Employees
FEGLI In Retirement
You have to meet the following requirements to bring FEGLI with you into retirement.
Retirement w/ an Immediate Retirement (including MRA+10)
Be covered under FEGLI for the past 5 years
Be covered under FEGLI on the date of retirement
Note: Breaks in service are not counted against you when determining the 5 years of service requirement because you were not eligible to be enrolled in FEGLI during the break in service.
Basic Coverage into Retirement
When you retire you have a few options when it comes to how much of your Basic Coverage you keep after the age of 65. They are a 75% reduction, 50% reduction, or no reduction. And of course you can completely cancel your Basic coverage in retirement if you want as well.
If you elect the 75 Percent Reduction, when you turn 65 or retire (whichever is later), your Basic insurance coverage reduces by 2 percent each month until the amount has been
reduced by 75 percent. When the reduction is complete, the remaining 25 percent of coverage will continue for the rest of your life.
If you elect the 75 percent reduction then the coverage will become free at 65 or when you retire if that is later than 65.
If you elect the 50% reduction or the no reduction options then there will be a premium that you will have to pay for as long as you want coverage.
Option A into Retirement
If you carry Option A into retirement it acts similar to Basic coverage but there are no elections to be made. Your Option A coverage will automatically decrease by 2% per month until it has reached a 75% reduction ($2,500 left) at the age of 65 or retirement if that is later. This coverage becomes free at that point as well.
Option B and C into Retirement
With Options B and C you will have elections to make if you choose to continue them into retirement. You will have to decide how many multiples of each you’d like to keep in retirement. You will also have to decide if you’d like a full reduction at age 65 (or retirement if later) or no reduction.
If you select a full reduction then your coverage (starting at age 65 or retirement if later) will decrease by 2% each month until it has been reduced by 100%. But picking the full reduction option does mean that the coverage does become free once the 2% reduction begins.
The downside of selecting the no reduction option is that it becomes very expensive to keep as you age.
Alternatives to FEGLI
As a whole, FEGLI does a pretty good job at providing insurance for the millions of employees that are in the program. That being said, there are some situations where employees would be better off finding coverage somewhere else.
There are many insurance companies in the private sector and you may want to get quotes from multiple firms to make sure you are getting a good deal.
One alternative to FEGLI that many federal employees find beneficial is WAEPA. This company offers group-term insurance specifically for federal employees and there are some situations that make more sense than FEGLI.
But again, make sure you have the coverage that you need before canceling FEGLI.
Whole Life Vs. Term
And as you are looking for coverage on the private side you will often have to make the decision between buying a whole life or term policy.
To keep things really simple, the big difference between term and whole life insurance is that whole life lasts until you die (assuming you keep paying the premiums) and term only lasts for a set amount of time.
Because of this term policies are often significantly cheaper than whole life policies.
So which one should you get? Well it depends on a number of things.
But the first question to ask is how long you will need coverage. If you really need coverage for the rest of your life then a whole life policy may be the way to go. But what I have seen is that most people only need coverage for a fixed amount of time and a term policy works great for that need.
For example, most people just need coverage until their kids are out of the house or until they have paid off their mortgage.
But again, you will want to do a thorough review of your situation when making this decision.
Keep Your Beneficiaries Current!
Getting the right life insurance for yourself and your family is the first step but the next (and very important) step is keeping your beneficiaries current as your life changes.
One of the saddest mistakes that I have seen is when a life insurance beneficiary is not current and the proceeds go to someone that wasn’t intended (often an ex-spouse).
It is good practice to review your policies every couple of years to make sure everything is still good to go.
Accidental Death and Dismemberment Coverage
This Accidental Death and Dismemberment coverage or AD&D is an extra (and automatic) part of Basic coverage and Option A coverage. Having Option B or C coverage will not increase the amount of AD&D coverage that you have.
If the event is eligible for AD&D coverage then these benefits will be paid out in addition to the other benefits that you may have.
For example, if you have Basic coverage and option B then (assuming the event is eligible for AD&D) then you would be able to get a payment from all three.
This is how OPM defines an event that is eligible for these benefits.
Source: https://www.opm.gov/healthcare-insurance/life-insurance/reference-materials/publications-forms/feglihandbook.pdf
If you pass away (or lose two limbs) from an event that is eligible then AD&D will pay out your Basic coverage amount as well as $10,000 if you have option A.
If you lose one limb from an eligible event, AD&D will pay out ½ of your Basic coverage amount and $5,000 if you have option A.
