The Federal Employees’ Group Life Insurance (FEGLI) Program is the largest group life insurance program in the world covering over 4-million Federal employees, retirees and many of their family members.
Overview: FEGLI Basic Coverage & Option B
FEGLI’s Basic coverage appeals to Federal employees because the government picks up 33% of the cost of premiums (for postal workers, the government pays 100%). Add to this FEGLI Basic coverage does not require a medical exam and workers are automatically enrolled in the Basic plan when hired. The amount of Basic coverage is the worker’s current SF 50 salary rounded up to the next $1,000 plus $2,000.
Workers can increase their Basic coverage with Option B by purchasing up to five times the amount of their basic pay. However, Option B premiums are paid 100% by the worker. Though the additional coverage may provide more peace of mind, it’s important to understand the drawbacks of Option B.
“Even when you compare Option B to similar term life insurance policies available in the private marketplace, it doesn’t measure up when it comes to the cost of premiums after age 50.”
Option B Premiums Start To Become Cost Prohibitive At Age 50
Unlike Basic coverage, the premium rates for Option B are based on age. Option B premiums begin to increase starting at age 35 and continue to increase every five years. Once you turn age 50, premiums essentially double for every successive five-year age band.
Since coverage is based on the amount of your basic pay, with each promotion or pay increase, your Option B premiums also increase. In fact, FEGLI Option B premiums become so cost prohibitive as you age, at some point the death benefit is less than all of the premiums you’ve paid over the years.
In addition to the rising cost of Option B premiums, as a group term life insurance policy it does not build up any cash value. Even when you compare Option B to similar term life insurance policies available in the private marketplace, it doesn’t measure up when it comes to the cost of premiums after age 50. Of course, other types of private life insurance products do build cash value and may offer federal workers more advantages than Option B.
Unlike Private Life Insurance, Option B Is Not Portable
As you know, many people change employers over the course of their careers. Some research indicates it can be as many as seven times before they retire. If a federal employee leaves their position for a non-government job opportunity they can’t take their Option B coverage with them. Individual insurance policies purchased in the marketplace are not affected when workers change employers.
