Do you have questions about life insurance as a federal employee? We have answers!
As a federal employee, you have probably heard of FEGLI. Moreover, it’s incredibly likely that you have Federal Employees’ Group Life Insurance as part of your benefits package, but having it is only part of the battle. Understanding it is the more mountainous task. With more than 500 questions on the FAQ page of the U.S. Office of Personnel Management’s website, understanding it can be difficult. That’s why it’s important to have a dedicated advisor willing to help you use it to your advantage throughout your career and retirement.
As per usual with life insurance, there are positives and negatives with FEGLI. Let’s break them down to help you understand how you’re protected as a federal employee and how you can use your benefits to plan for your future.
What is FEGLI?
Before we can cover the pros and cons of FEGLI, we have to first establish what it is. FEGLI stands for Federal Employees’ Group Life Insurance. It is term life insurance for the largest employer in the world, the federal government of the United States. It was first conceptualized in 1954 and currently covers more than 4 million employees and retirees and their family members.
The insurance is actually provided by MetLife, who has a contract with the OPM, or the Office of Personnel Management, and MetLife has an office dedicated to federal employees. That office is called OFEGLI, or the Office of Federal Employees’ Group Life Insurance, and it handles claims under FEGLI.
Employees are automatically enrolled into FEGLI, and premiums are deducted from paychecks. It is, however, possible, to waive coverage if you choose to opt out.
- Death benefit
The most obvious pro to a life insurance policy is the death benefit. In the event of untimely death, you can only hope to leave your beneficiaries with some money to cover the cost of your funeral and, ideally, support them without your income. The total payout of the basic package is one year of annual salary, rounded to the next $1,000, plus an extra $2,000.
- Automatic enrollment
Federal employees are automatically enrolled into the basic FEGLI package, which includes the death benefit. With automatic coverage, there is no hassle of an initial sign-up process. Premiums are then deducted right from your bi-weekly paycheck, so there’s no need to keep up with paperwork or deadlines. You’re also able to opt out of the group life insurance benefit if you so choose.
- Cheap for employees who are currently working
Under FEGLI, the employee pays two-thirds of cost, and the government pays one-third of the cost, except for postal employees who get basic coverage at no cost during employment. Age also does not affect the cost of the basic coverage, as long as the employee is working. There are even double basic benefits for employees until age 36, after which it decreases by 10% of the base death benefit each year until the age of 45. You can click right here to calculate the cost of your basic life insurance package and see your hypothetical death benefit.
- Opt-in additional coverage
FEGLI offers three additional forms of optional insurance if federal employees would like more coverage. Option A offers $10,000 in additional coverage. To see the additional cost per paycheck, or per month, you can click right here. Option B offers extra coverage in multiples of one through five of your base annual pay rate, and the additional cost is per $1,000 of additional coverage. To see a table displaying the extra cost per paycheck or per month for Option B, you can click right here. Finally, Option C insures spouses and children. Federal employees may insure their spouse for five units of $5,000, and they may insure their children for five units of $2,500. To see a table displaying the extra cost per paycheck or per month for Option C, you can click right here.
- Employees cannot borrow against their FEGLI insurance
Federal Employees’ Group Life Insurance is only a term life plan, so unlike other types of life insurance, there is no investment component, and there is no cash value from which you can borrow.
- Expensive and/or minimal coverage for retirees
As discussed in the list of pros, FEGLI comes with optional additional coverage for federal employees and their families. At age 65 or retirement, whichever comes later, the coverage in Options B and C are reduced 2% each month for 50 months, at which point there is no coverage. Employees who opted into Options B and C may continue their coverage, but premiums increase significantly with age. Under the basic package and the additional Option A, the coverage decreases 2% each month until the death benefit is 25% of its total at the time of retirement.
- Insurance has not been updated on pace with inflation
When FEGLI was first created in 1954, the $2,000 was intended to be the extra support figure to cover the cost of death. More than half a century later, the extra payout is still $2,000. With inflation at around 900% since 1954, that extra payout of $2,000 would need to be around $20,000 to have the same purchasing power.
- Coverage ends if you leave your job as a federal employee
Most professionals are always looking for great opportunities to progress their careers and horizons. Sometimes, for federal employees, that means leaving the government and working for a different employer. In that situation, coverage ends unless the employee is rehired by the federal government within 180 days, in which case the same coverage would be reinstated. Also, if you waived your coverage while working for the federal government, leave to work for a different employer, then return to work for the government, you are not eligible to enroll into FEGLI.
FEGLI can be confusing as a government employee, especially if you haven’t been properly educated on each individual detail. It is, however, a crucial piece of your benefits package as a federal worker. It’s important to know how your coverage works, what it entails and how it can help you if the unthinkable were to ever occur.