If you’re considering purchasing a private life insurance policy to help out your family in the event of your death, it’s important to understand the basics and analyze why you may or may not need additional insurance.
Using Life Insurance To Replace A FERS Survivor Annuity
You may have read articles suggesting using life insurance to replace a FERS Survivor Annuity. This strategy entails eliminating a reduction of your own annuity by choosing “No Survivor Annuity” on your retirement application. Instead, you purchase a life insurance policy from the private sector to cover the needs of your survivor when you pass away.
Financial experts are split on the viability of this strategy. At the very least, before you decide to go this route, crunch the numbers on your household income before and after your death. It’s important to understand that if your survivor is covered by your FEHB insurance, if you don’t elect a survivor annuity it will result in the termination of their FEHB coverage when you die.
The Difference Between Individual Life Insurance & FEGLI (Term Life Insurance)
When you purchase an individual life insurance policy from a private insurance company, you have a wide choice of different types of policies ranging from term life insurance to permanent life insurance. However, to qualify for the insurance, most insurance companies are likely to check your medical records and require a healthcare exam. Why? Because the pricing of premiums for individual life insurance depends on your age and health.
Group life insurance like the Federal Employees Group Life Insurance (FEGLI) program is guaranteed for employees and doesn’t require health exams or proof of insurability. All federal employees are eligible to apply regardless of age or habits like smoking.
“Permanent life insurance provides lifetime coverage and builds a cash value you can access. If your beneficiary pre-deceases you, you can cancel the policy and receive the entire cash value.”
The Difference Between FEGLI (Term Life Insurance) & Permanent Life Insurance
Term Life Insurance like FEGLI provides a death benefit during a specified period of time. That’s why it makes sense for federal workers raising a family. However, as you get older, premiums start to increase and coverage can decrease when you need it the most: in retirement.
Permanent life insurance provides lifetime coverage and builds a cash value you can access. If your beneficiary pre-deceases you, you can cancel the policy and receive the entire cash value. FEGLI coverage does not build cash value and when your beneficiary pre-deceases you, you get nothing.
Of course, this is just a general overview. Touch base with an FRC® trained advisor who can help you compare FEGLI to different types of private-sector life insurance products before you make a decision.
