FEGLI Life Insurance versus Private Life Insurance

FEGLI (Federal Employees Group Life Insurance) is a group life insurance program specifically offered only to employees of the federal government. When an employee enters the federal workforce, they are entitled to participate in benefits, programs, and certain investment opportunities that are not offered to employees in the public sector.

One of the benefits available to federal employees is the FEGLI which is a group life insurance program. If you are employed by the U.S. Federal Government, it is important that you understand the benefits that may or may not be provided by the program and make an informed decision about whether it is right for you and your family.
Federal Employees’ Group Life Insurance FAQs

Question #1: Is the FEGLI program better than the life insurance in the private market?

Answer: Since the FEGLI life insurance is subsidized by the federal government, it makes very good sense to take advantage of it based on your net cost of premium, but remember, the coverage is temporary, and your cost will increase every five years

Question #2: How much of my life insurance premium does the government pay?

Answer: Through the FEGLI program, employees who opt in will pay two-thirds of the insurance premium while the government pays one-third.

Question #3: Will I be automatically enrolled as a federal employee?

Answer: As a new employee, you will more than likely be enrolled in the Basic program. Some federal employees who have been working for the federal government for a while, however, may not have been enrolled.

Question #4: Must I enroll in the FEGLI insurance program?

Answer: No, it is not required that you enroll in FEGLI. You will, however, have to wait until the next open enrollment period if you decide later to enroll or if you want to increase your coverage.

Question #5: What types of insurance are available through the FEGLI program?

Answer: The life insurance coverage provided by the program is Term Insurance. It is temporary insurance and builds no cash value as you pay into the policy. There are four types of term insurance policies available:

BASIC

The basic FEGLI life insurance policy offers a death benefit equal to your annual salary (rounded up to the nearest $1,000) plus an additional $2,000. For example, if your annual salary is $52,750, your death benefit would be $53,000 plus $2,000 for a total death benefit of $55,000. Although postal employees receive the basic coverage for free, other government employees must share in the annual premium. As your annual salary increases over time, your death benefit will be increased accordingly along with your share of the premium. Also, the accidental death benefit is provided at no additional cost.

OPTION A

The Option A coverage provides only a $10,000 death benefit. Most employees who elect this coverage do so to cover final expenses and funeral costs. The policy is inexpensive at $0.20 per pay period but can become more expensive since the pricing is predicated on your age.

OPTION B

Option B is more flexible coverage since you can elect to up to five times your annual salary. It’s important to note, however, the rates for Option B change every five years and can become considerably more expensive once you reach age 50. In fact, at age 50 the rates increase significantly and may not compete with rates being offered in private insurance policies.

OPTION C

Option C is similar to Option B, but the employee is allowed to purchase coverage for his or her spouse and all children that are under age 22 and not married. As with Option B, the cost of the insurance depends on the age of the insureds and will increase over time as the insureds’ age increases. Although the coverage for family members does not have to match the coverage of the insured employee, the coverage selection must be a multiple of the insured employee’s annual salary.

Question #6: Which is the better deal for me, private market life insurance or FEGLI?

Answer: The life insurance provided through the FEGLI is no better or worse than life insurance purchased in the private market except for the length of the term for pricing. In other words, with FEGLI, your premiums are only guaranteed for five years, but in the private market, you can purchase up to 30 years of term insurance coverage. Plus, the private market offers many riders that will allow you to broaden your coverage.
Question #7: Since my premiums are subsidized by the federal government, shouldn’t my cost of insurance be less than the private market?

Answer: Yes and no. For most federal employees, their cost of insurance will be lower in the FEGLI program because of the subsidy until you reach age 50. At age 50 your insurance premiums begin to become more expensive than private market insurance, even with your subsidy. You must keep in mind however, the FEGLI coverage is guaranteed issue, in other words, any health conditions you may have will not affect the premium, only your age.

With private term insurance, you health classification will affect your premium along with your age. It is worth your consideration, however, because, with private market term insurance, you can lock in your rates for up to 30 years but with FEGLI you are limited to 5 years.

FEGLI OPTION B RATES COMPARE TO PRIVATE MARKET INSURANCE

This comparison will compare insurance premiums for FEGLI coverage versus coverage in the Private Market for ages 50 through 70 for an employee with a Preferred Health Class. The monthly premiums are based on a $100,000 death benefit:

Age Group FEGLI Monthly Premium Private Market Monthly Premium
50 – 54 $30.30 $27.00
55 – 59 $60.70 $41.00
60 – 64 $130.00 $65.00
65 – 69 $156.00 $117.00

As you can see by this premium comparison, your life insurance premium will be considerably lower beginning at age 50 and going forward using private market insurance. Also, the private market rates reflect a 20-year term which means that you can opt out of Option B at age 50 and pay only $27 per month over the next 20 years. (Rates are based on January 2016 pricing tables)
Conclusion and Your Next Step

Based on the rate table provided above, it makes great financial sense to Opt Out of Option B coverage when you reach age 50 and are still in relatively good health. Your term insurance purchased in the private market will cost you much less than your portion of the FEGLI premium plus you can consider additional options that will broaden your coverage and allow you to customize your insurance coverage to meet your specific needs and fit within your budget.