If you become employed by the Federal government, you are automatically eligible for FEGLI, the Federal Employee Group Life Insurance program. This is a group life insurance program that is offered using term life insurance, administered by the OPM, and underwritten by MetLife.
Since a portion of the FEGLI program is paid by the Federal government (one-third of the premium), it may appear to be financially beneficial to the employee, especially if you have some health issues that could make obtaining affordable life insurance a challenge. But when you take a closer look at FEGLI and the options provided that are not subsidized by the government, you should consider shopping your life insurance in the private marketplace.
Federal Employee Group Life Insurance (FEGLI)
The FGLI program is made up of Basic life insurance coverage which is sponsored by the Federal government, plus there are additional options that allow the employee to purchase additional insurance where they are responsible for 100% of the premium.
Here are the different components of the program:
The FEGLI Basic coverage is equal to the amount of an employee’s salary rounded up to the nearest $1,000 and then an additional $2,000 is added to it. For example, if an employee’s annual salary is $61,200. FEGLI would round that amount up to $62,000 and then add $2,000 which would total to a death benefit of $64,000.
FEGLI Basic also provides for the employee to get an Extra Benefit equal to the basic benefit at no charge to the employee. However, this Extra Benefit will be reduced by 10% every year for 10 years when the employee is under 35 or if the employee is 35 or older. The benefit is reduced by 10% each year until it is exhausted at age 45.
The FEGLI Basic also includes Accidental Death & Dismemberment Insurance (AD&D) equal to the basic benefit if the employee dies as a result of an accident. The AD&D will also pay a living benefit if the employee loses a hand or a foot or the sight in one eye.
FEGLI Option A
FEGLI Option A allows the employee to purchase an additional $10,000 in coverage. The coverage amount remains level over time but the premiums will increase every five years for employees who are 35 and older. Option A coverage gets very expensive for employees who are age 55 and older. When the employee retires, the Option A coverage is free but the coverage is reduced by 2% per month until only $2,500 of coverage remains.
FEGLI Option B
This option is provided so the employee can purchase additional life insurance. The employee has the option to purchase one to five times the amount of their annual salary but they are 100% responsible for the premium. Although the Option B rates start rather low at only $.065 per $1,000 per month, at age 50 they are $0.303 per month per $1,000 and grow exponentially from there.
FEGLI Option C
This option allows the employee to purchase insurance for a spouse and all dependent unmarried children under age 22. This coverage is provided in units of coverage. A unit of coverage for a spouse is $5,000 and a unit of coverage for all children is $2,500. The employee can purchase up to 5 times the unit of coverage for a spouse and children but the multiples must be the same for each.
Comparing FEGLI to Level Term Insurance in the Private Market
When we compare FEGLI insurance rates to level term insurance rates in the private market, we find in most cases that the FEGLI program, although partially paid by the Federal government is not the bargain you may have perceived; especially if you make the comparison over a lifetime.
To make a comparison, we will use a hypothetical employee who is a 36-year old single male non-smoker who is in good health. His annual salary for the quote comparison is $97,200 and he has elected Basic FEGLI and Option B with a multiple of 5.
The FEGLI cost for Basic and Option B are as follows:
This employee starts his coverage with $100,000 of Basic coverage that costs $32.50 per month. The employee will also receive an additional $90,000 in Extra Benefit coverage at no extra charge, but that coverage will go away at age 45. The cost for the $490,000 Option B coverage is $31.85 per month but that rate will increase every five years until it becomes so unaffordable that the employee will likely drop the coverage. The employee will also have an additional AD&D benefit that will only pay off if the employee dies from accidental causes.
This chart shows what happens to the Option B costs over time:
Notice how the rates climb from $31.85 per month to over $212 per month once the employee reaches age 55. When we include the Basic coverage rate of $32.50, this employee will be paying an unusually high rate for life insurance even though the Federal government is paying one-third of the Basic coverage. At age 45, the total insurance coverage is reduced from $680,000 in total coverage to $590,000 because the $90,000 Extra benefit goes away.
FEGLI Insurance Rates from age 55 to 80 for $590,000 in Coverage
|Age Group||Basic Coverage||Option B||Month Total||Annual Cost|
|55 through 59||$32.50||$212.17||$244.67||$2,936.04|
|60 through 64||$32.50||$466.97||$499.44||$5,993.28|
|65 through 69||$32.50||$573.30||$605.80||$7,269.60|
|70 through 74||$32.50||$1,019.20||$1,051.17||$12,614.04|
|75 through 79||$32.50||$1,911.00||$1,943.50||$23,322.00|
|80 and above||$32.50||$2,802.80||$2,835.30||$34023.60|
The total cost of the employee’s life insurance from age 55 through age 80 is an astonishing amount of $430,793.
Private Market Level Term Insurance Rates from 55 to 80
This chart shows the insurance rates from the private market for the hypothetical employee using the same assumptions:
|Age Group||Monthly Premium||Annual Premium|
|55 through 59||$345.94||$3,999.30|
|60 through 64||$345.94||$3,999.30|
|65 through 69||$345.94||$3,999.30|
|70 through 74||$345.94||$3,999.30|
|75 through 79||$345.94||$3,999.30|
|80 and above||$345.94||$3,999.30|
The total cost of the employee’s life insurance from age 55 through age 80 is a more affordable amount of $99,983 or total savings over 25 years of $330,810.
In conclusion, it’s obvious from the charts listed above, employees should consider life insurance from the private market if they intend to select any of the optional coverages that their employer will not participate in the costs.