As a federal employee, it’s important to understand how private life insurance compares to FEGLI and whether or not you may need additional coverage in retirement. For some retirees, a life insurance policy from the private sector can fill in an income gap in the event of your death. For others, it can be a tax-free way to pass on a legacy to your heirs. Before you make a decision, you need to understand the different types of policies.
Term Life Insurance Like FEGLI
Term Life Insurance like the Federal Employees Group Life Insurance (FEGLI) program is guaranteed for federal workers and doesn’t require health exams or proof of insurability. In general, a FEGLI Term Life policy provides a death benefit during a specified period of time. The FEGLI Basic plan offers a good deal because it provides term life insurance at group rates and Uncle Sam pays one-third of your Basic premiums. The downside is that term life insurance like FEGLI doesn’t build any cash value. As a result, if the beneficiary of your policy predeceases you, you get nothing.
“You can access the cash value of your Universal policy for any reason including using it to make your flexible premium payments.”
Permanent Life Insurance
Permanent life insurance products sold by private insurers provide lifetime coverage while building a cash value you can access. If your beneficiary predeceases you, you can cancel the policy and receive the entire cash value. There are two basic types of permanent life insurance.
- Whole Life Insurance: provides coverage for life and builds cash value. Depending on how the policy is written, it may earn dividends that increase the death benefit and cash value you can access for any reason.
- Universal Life Insurance: provides lifetime coverage and builds cash value plus it enables you to raise or lower premium payments within certain limits. You can access the cash value of your Universal policy for any reason including using it to make your flexible premium payments.
Tax Advantages Of Permanent Life Insurance
Your withdrawals from the cash value of your permanent life insurance policy are usually tax-free as long as the amount doesn’t exceed the premiums you’ve paid. Even better, the cash value of your policy grows on a tax-deferred basis. When you pass away, your beneficiaries will not owe income taxes on the death benefit they receive.
These and other types of insurance products, like an annuity or mortgage insurance, can be good investments and strategic additions to your retirement plan. Connect with an FRC® trained advisor who can help you compare different policies that can fill any gaps in your insurance coverage and provide peace of mind.
