Established by the Federal Government in 1954, the Federal Employees’ Group Life Insurance (FEGLI) is the world’s largest life insurance program covering over 4 million federal employees, retirees, and many of their families. One problem – the vast majority of workers don’t understand how it works. The main thing you need to know is that FEGLI is term life insurance, not permanent life insurance. This means you’re renting life insurance not buying life insurance.
The FEGLI Basic Program
FEGLI’s Basic program provides term life insurance at group rates. The Federal Government pays a third of the cost of premiums and the employee pays two-thirds. The Basic Insurance Amount (BIA) is equal to the greater of your basic rate of pay rounded up to the next even $1,000, plus $2000. Keep in mind, since FEGLI is term life insurance, it does not build up any cash value or paid-up value. And, if you leave your federal job, or get terminated before you retire, you lose your FEGLI coverage entirely.
“With permanent life insurance, your coverage does not decrease when you retire – a time when you and your family need it the most.”
What Happens To FEGLI Basic When You Turn 65 Or Retire
When you turn 65 or retire (whichever is later) you can choose what happens to your FEGLI Basic coverage:
- 75% Reduction – your Basic coverage amount reduces 2% each month until it reaches 25% of its pre-reduction amount. Your Basic is free (no premium) once the reductions begin and remains free until your death.
- 50% Reduction – your Basic coverage reduces 1% each month until it reaches 50% of its pre-reduction amount. You’ll need to pay an additional premium for this choice until you die; switch to 75% reduction; or cancel Basic.
No Reduction – your Basic coverage amount remains the same as you had when you stopped being enrolled as an employee. There is a larger extra premium for this choice that you will continue to pay until you die; or, switch to 75% Reduction; or cancel Basic.
Why Permanent Insurance Can Offer A Better Value
Permanent life insurance policies available in the private sector can offer comprehensive coverage without the drawbacks and limitations of the FEGLI Basic plan. With permanent life insurance, your coverage does not decrease when you retire – a time when you and your family need it the most. If you decide to work in the private sector, you can take your permanent policy with you. And benefits for your surviving spouse offer more value with a permanent life insurance policy.
Connect with an FRC® trained advisor who can help you compare different life insurance policies that offer better coverage than FEGLI.
Source: https://www.opm.gov/healthcare-insurance/fastfacts/fegli.pdf
