Just like all your other Federal Benefits, FEGLI can be quite complex with all the rules and special situations. I will try to break down the most important aspects here to make it a bit more digestible.
FEGLI can be broken into 4 different parts. I will walk you through them one by one.
Basic Life Insurance
When you are hired by the government, you will be automatically enrolled in this coverage. You will pay ⅔ the premium and the government picks up the rest. You are able to decline coverage but few people do. This coverage is equal to your annual salary rounded up to the next $1,000 plus another $2,000. For example, if your annual salary is $67,560, you’d have $70,000 over life insurance coverage ($68,000+$2,000).
This is the only type of coverage that the government helps pay for. The other coverages are optional and paid solely by the employee.
This coverage includes what they call “living benefits.” This means that if you are covered by this option and are terminally ill (defined as expected to die within 9 months), you may elect to cash in coverage. The payout would go to you instead of to a survivor. At that point, your policy would end.
Option A-Standard Insurance
This coverage is pretty simple. It is a flat $10,000 death benefit. Again at age 65, this coverage becomes free and will reduce by 2% a month until it reaches $2500.
Option B-Additional Insurance
If your basic insurance and option A insurance isn’t enough for your needs, you can also enroll in option B. You can choose coverage in the amounts of 1, 2, 3, 4, or 5 times your annual salary after it is rounded up to the next $1,000. For example, if you make $69,545 and elected 4 times your salary, that would be $280,000 of coverage ($70,000 x 4).
At age 65, this coverage becomes free but the coverage does start to decline by 2% per month until it reaches 25%.
Option C-Family Insurance
This option allows you to buy insurance on your spouse’s and/or childrens’ lives. This coverage can be bought for 1-5 multiples of $5,000 (ie, $5,000, $10,000, $15,000 ect) for your spouse and in 1-5 multiples of $2,500 for each child that is eligible.
Important Notes
At age 65, all 4 types of coverage become free but the coverage does start to decline by 2% per month until it reaches 25%. However, you will be able to pay premiums to stop this reduction. The amount of premium will vary depending on how much of your coverage you will want to keep into retirement.
The premiums are based on your age and get very expensive as you get older. In general, FEGLI premium rates are very competitive when you are young and get less so as you age. The biggest advantage of the plan is that you get group rates. If life insurance is important for your financial plan, it might make sense to look in the private market for policies as you get older. This doesn’t make sense for everyone but might be worth looking into.
