Life insurance coverage can help you to better ensure that your loved ones won’t have to struggle financially in case of the unexpected – especially during an already difficult time in their lives.
Unfortunately, unanticipated accidents and illnesses can – and do – occur. So, if you are faced with this type of scenario, it is good to already have a plan in place that can keep those you care about secure financially. This, in turn, can allow them to maintain their current lifestyle rather than uproot and/or cut back on the items and services they need.
Suppose you are an employee of the Federal government. In that case, you have the Federal Employees Group Life Insurance, or FEGLI, program. This financial “safety net” could help your survivors to wipe away debt (such as a home mortgage or credit card balance(s), pay for your final expenses, and/or replace lost income.
It is essential to know how this coverage works, though, as well as whether or not you will have enough financial protection for your loved ones. Otherwise, you, and they, could be relying on a false sense of financial security.
Who is Eligible for FEGLI Life Insurance Coverage?
Most full- and part-time federal government employees are eligible for FEGLI life insurance coverage. However, participating in the FEGLI program is completely voluntary, and if you choose to cancel your FEGLI coverage, you may do so at any time.
However, unless your position is specifically excluded from FEGLI coverage by law or regulation, though, you will be automatically enrolled in the Basic life insurance. This Basic insurance coverage will become effective on the first day that you are in a pay and duty status in an eligible position.
As a new Federal employee, you will automatically be covered for Basic life insurance through FEGLI – unless you elect to waive your enrollment. Note, however, that if you do waive FEGLI coverage – and you later wish to re-enroll in the program, you will have to wait for one year until after you have waived the coverage. In addition, it will also be necessary for you to undergo a physical exam (at your own expense) in order to qualify.
Coverage Options with the Federal Employees Group Life Insurance Program
The Federal Employees Group Life Insurance, or FEGLI, coverage is designed as a group term life insurance plan. That means that it provides death benefit only protection, without any cash value or investment built up inside the policy. FEGLI coverage is currently offered through this plan by Metropolitan Life Insurance Company (Met Life).
There are two types of coverage that are offered through the FEGLI program. These include Basic and Optional. Unless you specifically waive your FEGLI basic coverage benefit, most Federal employees are automatically enrolled in the Basic coverage.
FEGLI Basic Life Insurance Coverage
This Basic FEGLI coverage provides either a flat $10,000 of death benefit, or an amount that is equal to the rate of the employee’s annual basic pay, rounded to the next $1,000, plus an additional $2,000 – whichever dollar amount is greater.
FEGLI enrollees who are age 35 and younger are also covered by an additional Basic life insurance provision, at no added premium cost. This is referred to as the Extra Benefit, which doubles the amount of Basic life insurance benefit that is payable.
Starting on the enrollee’s 36th birthday, however, the amount of the Extra Benefit will decrease by 10% each year until the employee reaches age 45. At that time, the Extra Benefit coverage will disappear altogether.
In addition to Basic FEGLI coverage, Federal employees may also choose to have additional Optional life insurance coverage. You must, however, be enrolled in the Basic life insurance in order to elect any Optional FEGLI coverage.
Optional FEGLI Coverage
There are three different choices for the Optional FEGLI coverage. These include:
- Option A – Option A is the Standard Optional Insurance. This equals a flat $10,000 in additional, optional life insurance coverage.
- Option B – Option B is Additional Optional Insurance. This coverage comes in 1, 2, 3, 4, or 5 multiples of your annual pay, after the pay has been rounded to the next higher thousand. It is important to note that this coverage does not include the extra $2,000 that is added for Basic insurance.
- Option C – Option C is Family Optional Insurance. This FEGLI option provides coverage for your spouse and/or your eligible dependent children. If you elect Option C, all of your eligible family members will automatically be covered. You can elect 1, 2, 3, 4 or 5 multiples of coverage. Each multiple is equal to $5,000 for a spouse, and $2,500 for each eligible child.
The death benefit proceeds from any of these FEGLI life insurance plans are received income-tax-free by the plan’s beneficiary (or beneficiaries). Therefore, 100% of the proceeds may be used for the survivors’ current and/or future needs.
Additional Coverage Options Through FEGLI
In addition to the Basic and Optional FEGLI coverage, there are some other life insurance protection alternatives, too, through the Federal Employees Group Life Insurance program. These include:
- Accidental Death and Dismemberment (AD&D) coverage
- Living Benefits
Accidental Death and Dismemberment coverage is an automatic component of the Basic FEGLI insurance plan (as well as FEGLI Option A). The AD&D benefits are payable if an insured individual sustains an injury, by accidental means, and within 90 days of that injury, the insured individual either dies or loses his or her eyesight and / or a limb.
The accidental dismemberment benefit is based on the amount for which you are insured on the date that the accident actually occurs, as well as the extent of the loss of the dismemberment.
Living benefits refer to options for using life insurance proceeds while the insured is still alive. For instance, you could be eligible for these benefits if you have been diagnosed with a terminal illness and you have a life expectancy of nine months or less.
Federal employees are allowed to elect a full benefit, which refers to all of your Basic insurance coverage, or you could alternatively elect to receive just a partial living benefit. (These benefits are typically paid out in multiples of $1,000). It is also important to note that only the Basic FEGLI life insurance is available for payment as a living benefit.
How Much Does FEGLI Life Insurance Coverage Cost?
The cost of the Federal Employees Group Life Insurance coverage is split between you and your employer, with you paying two-thirds of the premium, and the government paying for the remaining one-third.
The FEGLI Basic insurance premium is a level rate that is based on each $1,000 of coverage. Level premiums refer to the rate that is charged for the duration of the coverage period. Also, unlike many individual term life insurance plans, the cost of FEGLI coverage will not rise as the employee gets older. (Although overall rate increases may occur for the FEGLI group plan as a whole).
Selecting Your FEGLI Coverage Beneficiary
Choosing your beneficiary (or beneficiaries) can be an important step, as this person or entity will receive the FEGLI insurance proceeds if you should pass away while you are covered by this plan.
The beneficiary that you select does not have to be an individual. Rather, it may be an entity, such as a trust or a charity, and / or a business.
You will be required to designate a beneficiary if:
- You want benefits to be paid to a person, firm, organization, or other legal entity not listed in the order of precedence
- You want benefits to be paid in a different order than the order of precedence, or
- You want your FEGLI benefits to be paid to a trust that you have established for your minor children.
When a covered individual passes away, the Office of Federal Employees’ Group Life Insurance, or OFEGLI, will pay benefits in a particular order. This order of benefit payment is set by law, and not by the insurance plan itself.
The order of benefit payout is as follows:
- If you assigned ownership of your life insurance, benefits will first be paid out to the beneficiary or beneficiaries that were designated by your assignee, if any. Second, if there is no such beneficiary, then the benefits will be paid to your assignee.
- If you did not assign ownership and there is a valid court order, then benefits will be paid in accordance with that court order.
- If you did not assign ownership and there is no valid court order on file, then the benefits will be paid out in this order:
- First, to the beneficiary or beneficiaries that you validly designated.
- Second, if no such beneficiary exists, then benefits are paid out to your widow or widower.
- Third, if there are none of the above, the benefits will be paid to your child or children, in equal shares, and the descendants of any deceased children.
- Fourth, if none of the above, then the payout will go to your parents in equal shares, or the entire amount to the surviving parent.
- Fifth, if none of the above are available, then benefits will go to the court-appointed executor or administrator of your estate.
- Sixth, if none of the above, then benefits will go to your other next of kin entitled under the laws of the state where you lived.
FEGLI Option C benefits are paid to you, the insured, upon the death of your spouse and / or your eligible children.
How Much Life Insurance Coverage Do You Need?
In some cases, FEGLI life insurance coverage is not enough to protect the financial needs of your loved ones. Because of that, it is important that you discuss all of your current and potential future financial objectives with an insurance and retirement planning specialist.