Federal employees have access to a group life insurance program for themselves and their families. This program, referred to as FEGLI (Federal Employees Group Life Insurance) is an employer-sponsored life insurance program that Federal employees are automatically enrolled in unless they opt out of the coverage.
FEGLI Basic coverage is moderately priced term insurance that is guaranteed issue for Federal employees. This means that employees can purchase the life insurance no matter if they are completely healthy or if they have health issues. The employees are responsible for two-thirds of the periodic premium (typically bi-weekly) and the Fed picks up the cost for the other third.
This is Term life insurance and insurance coverage is calculated using the employee’s basic salary as a starting point. The salary is then rounded up to the nearest $1,000 and an additional $2,000 is added to it:Here is an example of how insurance coverage is determined under FEGLI Basic:
|Basic Annual Salary||Rounded Up $1,000||Additional $2,000||Death Benefit|
Employees also receive an additional death benefit equal to their basic death benefit, but at age 35 this benefit is reduced by %10 each year until age 45 when the benefit is exhausted.
For example, an employee under age 35 would start off receiving the entire additional death benefit, but an employee over age 35 will receive the death benefit that has been reduced by 10% for every year they are over age 35. The OPM (Office of Personnel Management) administers the program and provides a FEGLI calculator to help employees determine the exact amount of their insurance benefit along with the employees share of the premium.
The FEGLI Basic coverage also includes Accidental Death & Dismemberment (AD&D) insurance at no charge. This benefit allows the employees beneficiary to collect an amount equal to the basic death benefit if the employee’s death is the result of an accident. The AD&D also provides a living benefit if the employee suffers the loss of a hand, foot, or the site in one eye. This benefit is also illustrated in the check sheet provided by the FEGLI calculator.
It’s important to note that an employee’s FEGLI Basic coverage is not static. Each time the employee qualifies for a higher rate of pay, their insurance coverage (and premium) will go up accordingly.
FEGLI Option A
FEGLI Option A is an additional option provided for employees to purchase an additional $10,000 in life insurance but will be responsible for 100% of the premium. Although this additional coverage remains level throughout the employee’s life, the premium becomes substantially expensive at age 50.
FEGLI Option B
The FEGLI Option B coverage is a method where the employee can purchase additional life insurance and thereby have a more realistic life insurance plan. Under FEGLI Option B, the employee can select a multiple of 1, 2, 3, 4, or 5 times their salary rounded up to the nearest $1000 as an additional death benefit. The FEGLI Option B insurance premium is paid 100% by the employee.
Although the FEGLI Option B death benefit remains level, the rates go up every five years when the employee ages into a new age bracket. With the increasing term rates, what started out as moderately priced term life insurance becomes unaffordable for the majority of employees.
For example, a 40-year old employee earning $90,500 per year is entitled to purchase up to five times that amount or $594,500 (remember the $90,500 is rounded up) in Option B insurance coverage. At age 40, the premium per pay period is $18.20 which sounds reasonable, but at age 55, that same amount of life insurance costs $91 per pay period. After that, the premium increases exponentially till it finally becomes unreasonable and unaffordable.Here is the check sheet using the FEGLI Calculator for the example above:
Notice how the rates climb dramatically once the employee enters the 55 through 59 age bracket, and remember, these rates are bi-weekly, not monthly.
The FEGLI Option B Alternative
Every Federal employee that has elected Option B coverage would be better off using Level Term Insurance in the private insurance marketplace once they become age 50. The difference in premiums is astounding and they remain the same throughout the policy period.
Below, we have provided rate charts for FEGLI Option B coverage and the private insurance so you can compare the vast savings when you change to a traditional term insurance at age 50. This comparison is for a $1 million insurance policy and assuming the employee is relatively healthy.
FEGLI Option B rates for $1 million term insurance from age 50 to age 80 and above:
|Age Group||Monthly Premium||Annual Premium|
|50 through 54||$238||$2,856|
|55 through 59||$433||$5,196|
|60 through 64||$953||$11,436|
|65 through 69||$1,170||$14,040|
|70 through 74||$2,080||$24,960|
|75 through 79||$3,900||$46,800|
|80 and over||$5,720||$68,640|
Private market life insurance rates for the same $1 million in Level Term Insurance from AIG Insurance Company:
|Age Group||Monthly Premium||Annual Premium|
|50 through 54||$314.34||$3,364|
|55 through 59||$314.34||$3,364|
|60 through 64||$314.34||$3,364|
|65 through 69||$314.34||$3,364|
|70 through 74||$314.34||$3,364|
|75 through 79||$314.34||$3,364|
|80 and over||$314.34||$3,364|
Although the FEGLI B rate is lower in the 50 through 54 brackets, it makes good financial sense to make the jump from FEGLI Option B to the private market when you are more than likely in good health.
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