As you get closer to retirement, it’s important to understand that your FEGLI premiums increase as you age especially after you turn age 50. With this in mind, you may do well to shop for life insurance policies in the private sector to cover the needs of your family should you pass away. Here are some mistakes to avoid when buying private life insurance.
Buying The Wrong Amount Of Coverage
Deciding how much life insurance to buy requires looking at what your beneficiary’s financial needs will be in the future. Purchasing too much coverage can mean paying high premiums unnecessarily. Of course, the downside of purchasing too little coverage is obvious: financial hardships for your beneficiary.
Waiting Too Long To Buy Private Life insurance
A number of federal employees decide to drop FEGLI Option B because, once you turn age 50, premiums essentially double for every successive five-year age band. However, keep in mind the pricing of private life insurance depends on your age and health. If you wait too long to buy a private policy, you’ll likely pay a higher rate. Or, worse, you might not be able to get a policy at all if the medical exam – which is usually required at age 50 and over – reveals a chronic health issue.
“Even if you haven’t named your estate as beneficiary, if your primary beneficiary predeceases you, the insurance policy becomes an estate asset by default.”
Naming Your Estate As The Beneficiary
When you name an estate as your beneficiary, it becomes an estate asset and may be subject to probate court. Add to this, as an estate asset, creditors can get access to the policy proceeds and proceeds may be subject to the state inheritance tax. Even if you haven’t named your estate as beneficiary, if your primary beneficiary predeceases you, the insurance policy becomes an estate asset by default. This leads us to the next mistake.
Not Naming Contingent Beneficiaries
As covered above, if your primary beneficiary pre-deceases you, your estate becomes the beneficiary. That’s why it’s important to name a contingent beneficiary (or beneficiaries) as a backup. You can name multiple contingent beneficiaries and designate a specific percentage of the policy proceeds for each as long as they add up to 100%.
Not Working With A Qualified Insurance Professional
From helping you calculate how much coverage you need, to comparing polices from different carriers, an insurance professional can help you avoid the common mistakes and choose the best policy for your needs. Touch base with an FRC® trained advisor who understands your federal benefits and also has the knowledge required to help you purchase life insurance.
