Our insurance experts advise all federal employees that are healthy to look for options in the private insurance market and compare the available rates with their FEGLI policy. The cost of FEGLI option B is insanely expensive in comparison with private insurance market options. The FEGLI Option B plan is term life insurance that is implemented using group life insurance rates but the price goes up every 5 years. Under group insurance rules, an employee's acceptance is guaranteed when the application is submitted during open season, and the healthier employees pay more in premiums to counterbalance the higher risk of unhealthy employees.
The FEGLI Option B insurance policy is a term life policy, therefore, it doesn't build cash value and the plan does not guarantee your surviving loved ones they will receive a death benefit. The federal employee is actually hedging their bets that they will pass away during the policy period, if they do, beneficiaries will receive the death benefit.
The Basic Benefit
Getting the basic benefit is considered a no-brainer because your employer is going to pay for a third of your insurance premium. This is one of the perks of being employed by the federal government. Your death benefit will be equal to your annual salary rounded up to the next $1,000 plus an additional $2,000. An additional perk is that your coverage will receive the “Extra Benefit” where your death benefit will be doubled if you are 35 or younger, however, once you reach age 36 the Extra Benefit begins decreasing at a rate of 10% per year until you become 45 and it is completely exhausted.
Here is what this would look like for a 26-year old employee earning $31,500:
Employees are also provided Accidental Death and Dismemberment coverage. This coverage provides additional funds in the event of a fatal accident or an accident that results in the loss of a limb or eyesight. For benefits to be paid, the loss must occur not more than one year after the accident and be a direct result of bodily injury sustained from that accident, independent of all other causes. AD&D Insurance is provided at no additional cost. Accidental Death & Dismemberment coverage is an automatic part of Basic and Option A insurance for employees.
But What if I Need More Coverage?
The good news is that employees that want additional coverage can enroll in Option B and are allowed to purchase (must pay 100% of the premium) additional insurance coverage. Choosing Option B allows the employee to purchase up to five times the amount of their annual salary. The cost for Option B depends on your age and the rates will increase every 5 years as you reach a higher age group. Option B is still a bargain for the employee until they reach 50-years old.
At age 50 the cost of the insurance continues to increase exponentially and will become unaffordable, especially when you compare your rates to the private insurance marketplace.
Here is an actual case study for a virtual policyholder that we’ll call Grace Chi:
Virtual Policyholder Number 2
Grace wants life insurance in the amount of at least 5 times her salary but wants to reduce the rising cost. We recommend Grace pick up a 30 year, fully underwritten term life insurance policy with an $800,000 face amount, keep FEGLI basic and drop FEGLI option B.
The result: Over the next 17 years Grace will save over $26,000 in life insurance costs and have a fixed cost of $179.22 monthly for a 30-year term life insurance policy with a face amount of $800,000 through age 80.
Grace Chi, Program Analyst
Department of Veteran’s Affairs, Washington, DC
Current Series, Grade/Step : GS- 0343-13/8
Plans to retire at age 67
Health concerns: None. She doesn’t smoke.
Current FEGLI Participation: FEGLI Basic
Pays per pay period: $18.30
FEGLI option A: 0
FEGLI option B: 5 times salary $66.00 $600,000
FEGLI option C: 0
Reason #1 to Drop FEGLI Option B - Rate Increases
In the example above, pay close attention to the annual premium column in yellow. Notice how much higher her annual premium for Option B gets each five years. When Grace reaches age 50 her rates for Option B begin to explode and will likely become unaffordable for her.
Reason #2 to Drop FEGLI Option B - Coverage Decreases
Since Grace’s Extra Benefit Coverage begins to decrease at age 35, every year she is insured for less coverage but still paying the same amount of premium each and every month. In fact, Grace’s FEGLI coverage can be reduced to 25% at retirement. If she isn’t careful and doesn’t maintain her awareness of how her insurance plan is working, she could jeopardize the death benefit that is intended for her surviving loved ones.
Reason #3 to Drop FEGLI Option B - FEGLI is not Permanent
Your FEGLI program was never designed to be permanent insurance. Although the premiums are substantially low early on, there is no cash value built up in the policy that will help pay the premium when you get older. In fact, FEGLI Option B is more like Annually Renewable Term because the policy goes up significantly every five years to where it will eventually become unaffordable. At this point, most people are not healthy enough or young enough to buy a 20 or 30-year term policy that they are likely not going to outlive.
Additional reasons to drop your FEGLI Option B coverage are:
- Your death benefit is limited to five times your annual salary
- It is extremely difficult to increase your coverage if you haven’t chosen the maximum limit
- If you leave the federal government you can't take your life insurance with you
- There are no option riders available like with private insurance – no living benefits
- Your promotions and step increases - add to your life insurance bill and coverage
Do it Sooner rather than Later
It's pretty much public knowledge that life insurance rates are based on the applicant's age and health condition. Knowing this, it is all the more important that a federal employee who has elected Option B, replace that option with a level term life insurance policy purchased in the private market. Term rates are extremely competitive and there many riders available to add living benefits to your policy.
Most American workers will put their job before their health and will typically develop health issues once they hit 50 years old. Making these changes to your life insurance plan when you are 50 and healthy will provide the savings you'll want for a lifetime. Contact the professionals at LifePolicyShopper.com now and learn the incredible amount of money we can save you over FEGLI Option B.