MICHAEL WOOD – FEGLI provides coverage to federal employees and is employer-sponsored. Interestingly, it is the largest insurance program of its kind in the USA.
The program was created in 1954 and covers federal employees, their families and retires. Currently, the Office of Personnel Management administers the program with MetLife Insurance Group underwriting its processes.
FEGLI offers four types of coverage options. The first option is Basic coverage, which the federal government subsidizes. In this arrangement, employees foot two-thirds of their premiums and the government pays the rest. Even so, employees foot 100% of premiums in the optionsFEGLI cover. But all FEGLI coverage is a Term Life Insurance that does not earn any interest or cash value.
With FEGLI Basic coverage employees receive automatic coverage unless one opts out. Typically, basic coverage has three death benefits that insure employees for a sum equal to their annual basic salary to the nearest $1,000 plus an extra $2,000.
Example: let’s assume Jane Doe comes to Michael Wood’s office and she makes $37,400 in a year. Based on the above rule, Jane’s death benefit would be $40,000.
Besides that, Basic FEGLI coverage adds additional funds equal to Jane’s annual basic pay. But upon attaining35 years, this figure reduces by 10% until age 45 when it ceases to apply. Below is a table showing how this works every year beginning at 35 years of age.
|Age at Death||Basic Insurance||Extra Benefit||Total Basic|
|45 and over||$40,000||$0||$40,000|
Keep it in mind that the additional coverage figure reduces annually until it no longer applies.
Another type of coverage under the Basic FEGLI coverage is Accidental Death and Dismemberment. ADD coverage pays an amount equal to the FEGLi’s basic coverage if an individual’s death arises from a covered accident. An equivalent amount is paid where an individual loses two of the following an accident:
- A foot
- A hand
- Or an eye
If lose of one of the above occurs, Basic coverage pays a $20,000 benefit.
FEGLI Optional Covers
FEGLI offers Optional Coverage that an employee pays for 100%. These options include:
This option lets employees purchase extra coverage worth $10,000. Althoughbenefitsremainconstantover time, employees graduate to higher premium brackets every five years. Below is a table detailing how premiums increase every five years upon attainingthe age of 35 years.
|Age Group||Costs of Option A Coverage Over Time|
|35 to 39||$0.30|
|40 to 44||$0.40|
|45 to 49||$0.70|
|50 to 54||$1.10|
|55 to 59||$2.00|
|60 to 64||$6.00|
|65 to 64||$6.00|
|70 to 74||$6.00|
|75 to 79||$6.00|
|80 and above||$6.00|
NB: Coverage premiums increases are charged biweekly not monthly whenever an employee attains the age of 50 years. Term life issuance premiums are higher than those found in the private insurance marketplace.
FEGLI Option B
This optionalcoverage plan lets employees acquire coverageworth five times the valueof basic coverage. Similar to Basic coverage, this is term life insurancethat accumulatesno cash valueand earnsno interest. Plus, employees pay 100% of all coverage premiums. Option B coverageremainsconstantthroughout its duration but premiumcosts increase every five years after anemployee attainsthe 35 years. The example below demonstrates option B coveragethat is fivetimesthe value of basic coverage.
|Age Group||The premium for Option B Coverage|
|35 to 39||%5.70|
|40 to 44||$7.60|
|45 to 49||$13.30|
|50 to 54||$20.90|
|55 to 59||$38.00|
|60 to 64||$83.60|
|65 to 69||$102.60|
|70 to 74||$182.40|
|75 to 79||$342.00|
|810 and above||$501.60|
NB: Option B coverage rates increase rapidly after attaining 50 years. At 50 years of age, employees pay $20.90 per payment period equivalent to $45.28 per month. At age 55, employeespay $38.00 per payment period equivalent to $82.33 per month. At this rate, premiums are bound to become unmanageableby the age of 65 years as well as premiums building no cash value during this time.
FEGLI Option C coverage lets employees acquire term life coverage for their families (spouses and any children). Accordingly, it covers spouses for $5,000 and children for $2,500. Besides that, emplo0yees can opt to obtain coverage that is five times the value of the initial lump sum for both spouses and children. However, all selected multiples must be of equal value.
OptionC covers unmarriedchildren from birthuntil the age of 21 years. Also, any disabledor handicapped childrenare allowed to remain under this coverage after the age of 22. Just like Options A and B amountof coverageremainsconstant though premiumsbeginto increaseuponattaining35 years. Below is a ratestablefor Option C coverage.
|Age Group||Costs per Payment Period|
|35 to 39||$1.35|
|40 to 44||$2.05|
|45 to 49||$2.95|
|50 to 54||$4.60|
|55 to 59||$7.40|
|60 to 64||$13.50|
|65 to 69||$15.70|
|70 to 74||$19.15|
|75 to 79||$26.30|
|80 and above||$36.00|
NB: Option C rates increase at a fat rate from 60 years onwards. Even so, Option C children coverage may no longer apply at this age.
Comparing Between FEGLI Life Insurance Options and Private Market InsuranceOptions
The chart below illustrates the rates applicable to individuals making $96,100 annually with five multiples of Option B and Option C coverage
|AGE||Total Death Benefit||Bi-Weeklypremiums||Monthly premiums||Annual premiums|
|50 to 54||$594,000||$73.30||$160.12||$1,921.40|
|55 to 59||$594,000||$121.25||$262.71||$3,152.50|
|60 to 64||$594,000||$247.75||$536.79||$6,441.50|
|65 to 69||$594,000||$486.45||$1,053.98||$12,647.70|
|70 to 74||$594,000||$920.15||$1,993.66||$23,923.90|
|80 and above||$594,000||$1,337.25||$2,897.38||$34,768.50|
According to this rates chart spread outover30 years, the total costs payable by the employer amount to $314,005. Interestingly, no matter how committed employees are to their life insurance policies not many can afford to pay the above figure. Fortunately, affordable alternatives exist in the private insurance market.
Private FEGLI Option A Alternatives
Acquiring similar coverage at age 50 in the private sector, one gets to pay cheaper premiums. What’s more, the table below depicts the considerable savings of obtaining private sector insurance.
|Age Bracket||Total Death Benefit||Bi-Weekly Premiums||Monthly Premiums||Annual Premiums|
|50 to 54||$594,000||$193.59||$2238.04|
|55 to 59||$594,000||$193.59||$2238.04|
|60 to 64||$594,000||$193.59||$2238.04|
|65 to 69||$594,000||$193.59||$2238.04|
|70 to 74||$594,000||$193.59||$2238.04|
|80 and above||$594,000||$193.59||$2238.04|
Apparently, private provider chargehigher rates that FEGLI’s group rates. This isbecauseFEGLI typically levies higher premiums on healthapplicants to offset shortfalls in less healthyapplicants. Nonetheless, in the private sector,this is not the case. The private marketplace pays a totalof $67,141 for a death benefit of %594,000 equivalentto asavingsof $246,864.
Michael Wood is the principal and owner of Integrity Retirement Planning, LLC with offices located in Cambridge, Maryland. Michael began his career in Insurance and Financial Services with Bankers Life and Casualty in 1999 where he practiced insurance until 2002 at which time he started his own company.
Michael Wood has been a licensed professional for almost 20 years, and he has focused exclusively on those consumers who are close to or already retired. He has a unique skill set and can help consumers carefully plan for federal retirement, long-term care, retirement income, Medicare, and Estate Planning. People who are getting close to retirement, or who have already retired, often find that the integration of the different components of their unique situation can be challenging to understand and plan for without help.
More Articles by Michael Wood: Is your Pension Safe?