Is FEGLI Right For You, Right Now?
By: Carol Singer
When it comes to the FEGLI, there are some common questions that arise time and time again but perhaps none quite as much as ‘is it the right time in my career/life for FEGLI?’. In truth, there’s no definitive ‘yes/no’ advice we can provide here, but we can suggest three considerations to help make your decision that little bit easier.
- Firstly, do you believe that you are healthy enough to qualify for individual coverage? When thinking about this factor, you should consider your habits, age, health, lifestyle, etc.
- Secondly, what’s your timeframe in the coming years? Normally, federal employees will get priced out of FEGLI coverage as they age and as FEGLI Rates rise dramatically, so what stage of your career have you reached?
- Thirdly, what are you trying to protect with a potential policy?
The Federal Employee Group Life Insurance, shortened to FEGLI, is advantageous for many federal employees since coverage can be obtained without the worry of medical underwriting. If you’re still early in your career, it’s also quite easy to get a competitive death benefit. However, it isn’t all roses with FEGLI coverage because the premiums steadily increase over time and everybody pays the same rate (the flip side of having no individualism with underwriting). This means that healthy FEGLI participants will be charged the same higher rates and unhealthy participants. So if you are healthy enough to get individual coverage you should seriously consider less expensive FEGLI alternatives.
Potential Benefits of Private Life Insurance vs. FEGLI
If you were to assess the private life insurance market, there are also pros and cons because coverage is more flexible with various riders and underwriting…but the medical underwriting may force you to pay higher premiums if you are unhealthy.
Surviving a Health Scare – If you were suddenly struck down with a heart attack, cancer, or even a stroke, your ability to obtain life insurance would be difficult and the expenses would go sky-high. Therefore, ‘living benefits’ – benefits you can access while still alive – can be an excellent way to replace your income and stay afloat in the short-term. With private insurance, an Accelerated Living Benefit rider could allow you a certain percentage of your benefit early. On the other hand, the FEGLI offers you nothing which leaves you scrambling around with your TSP for much-needed funds.
Considering you have been working hard to contribute to your TSP year-after-year, to think it could all disappear in a matter of months on medical bills and replacing your income is quite worrying. Just because of a health problem, you lose your nest egg, and this is before we even mention taxes and a penalty for withdrawing from your TSP early.
With life insurance, the question for many years was ‘what if I were to pass away?’ However, this is quickly being replaced with ‘what if I live after a health issue?’. Nowadays, technology within the medical industry is growing rapidly, but the cost of medical care is increasing even faster which is putting families into debt every single day.
Do I Need FEGLI?
With any type of insurance you purchase, whether it’s life, travel, homeowners, or health, the idea is to protect something of value just in case something were to happen or go wrong. Ultimately, this is why life insurance is a personal choice and different for every individual in the world. Normally, you can decide with your family the main concerns and how you want to protect them.
If insurance was free to everyone, there’s no doubt we’d be taking policies against cardboard box injuries, asteroids, and everything in between. Perhaps even more efficient, if we could see into the future, we would know exactly what insurance was required (or we could prevent the problem from happening in the first place). Unfortunately, neither of these options are available because insurance costs money and we haven’t developed time machines. Therefore, the answer to the all-important question of life insurance should be answered by looking for flexible coverage at an affordable price.
Within the industry, insurance will typically be limited in the amount of triggers they have, so finding an inclusive policy such as this is easier said than done. If you were to ask a federal retiree whether they managed to purchase cancer insurance after forking out for the FEGLI, FEHB, and FLTCIP, you wouldn’t get much of a response. Even if they were lucky enough to buy cancer insurance, then what happens if they have a heart attack; nothing because the wrong trigger was set and money has been wasted.
Rather than buying insurance policies with a single trigger, it will always be more efficient to find coverage with many different benefit triggers.
FEGLI Candidates – With all of this information in mind, who does the FEGLI suit? First and foremost, Death Only Insurance will be the cheapest option for those aged under 45 years. If you are already past this age, the five-year increases have already started, and the Basic Extra Benefit has ended. Therefore, private insurance starts to become more competitive (this is helped by the addition of living benefits).
After this, FEGLI may still be an option if you have a health condition since there is no medical underwriting. If the issue is serious, private insurance companies will take this into account and raise all premiums.
With the FEGLI still around today, this alone shows that it has a place in the industry and it helps thousands of people. This being said, it is very generic in that everybody pays the same regardless of his or her health, smoking habits, and every other factor that normally plays a role. In the same breath, the price increases will apply to everyone regardless of the same factors.
Key Questions – Before we go, we want to provide you with some key questions you need to ask before making a decision;
- Will underwriting be a problem if I go for personalized coverage privately?
- Can I pass the underwriting in a few years’ time if I were to wait?
- What exactly do I need to protect? – For most, the death benefit will replace income, pay for a funeral, and ensure their families can continue their current lifestyle while adjusting to your passing.
- Will my need for insurance be removed in the next decade or two? – For example, will you finish paying a mortgage or will your children leave education?
- Have I got cash reserves to act as living benefits?
All things considered, the best thing for you to do right now is to assess your position. The longer you wait, the more FEGLI becomes unattractive, and you are forced into private insurance which can be damaging if you have a health issue. If you need help with this decision, be sure to discuss your position with a finance expert for unique advice!
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