This is the last in a series on the Federal Employees’ Group Life Insurance program. The first two articles focused on Basic and Optional coverage under FEGLI. The third described the circumstances under which an employee not covered by FEGLI could enroll or, if already enrolled, could increase coverage.
Now I want to discuss two features of the FEGLI program about which you are probably unaware. First, you can assign your life insurance benefits to another person or persons. Second, you can cash in your Basic insurance when you have been diagnosed as being terminally ill. However, by law, these options are mutually exclusive. If you elect one, you can’t elect the other.
Assignment of Benefits
Until a change in law in 1994, only those with private life insurance could make an irrevocable assignment of their FEGLI insurance as part of an estate planning effort, to obtain cash before their death, or for other valid reasons. However, a now you can transfer ownership and control of your Basic, Standard Optional, and Additional Optional insurance to any individual(s), corporation or trust. If you do so, you won’t be able to cancel your life insurance or make any changes in your beneficiary.
There’s one exception to the rule. Under a 1998 law, you can’t transfer ownership of your life insurance if a court has issued a decree of divorce, annulment or legal separation specifically stating that your FEGLI benefits must be paid to someone else.
Living Benefits
There are private businesses out there that are willing to buy the insurance policies of people who are terminally ill. These companies purchase a policy at less than its face value. How much less depends on your life expectancy. These are called viatical settlements.
Since 1995, the law has provided that anyone who is terminally ill and has a life expectancy of nine months or less may elect what is called a “living benefit.” It’s an accelerated payment of Basic life insurance benefits to the policyholder, rather than to a beneficiary or survivor.
The government’s living benefit provision differs from private sector viatical settlements in several ways. For example, only Basic insurance can be cashed in, and viatical settlements may be made with individuals whose life expectancy is greater than nine months.
A living benefit may be elected only once, and that election can’t be reversed. So, if you elect a full living benefit, you will be cashing in your entire Basic policy. If you elect a partial living benefit, you will only be cashing in a portion of that policy. That can be done in multiples of $1,000. With a full living benefit, you would no longer pay any premiums. With a partial benefit, your premiums would be reduced. Note: Retirees and compensationers may only elect full living benefits.
Clearly, if you elect a full living benefit, your survivors will not be eligible for any Basic insurance benefit. A partial benefit will leave them with the remainder of your policy. However, the dollar value of the remaining amount will be frozen. It will never change, even if your salary goes up.
If you are eligible for a FEGLI living benefit, the amount you receive will be less than the face value of your policy. That reduction represents the interest lost to the life insurance fund because they paid you ahead of schedule. Fortunately, there is no profit margin included in a living benefit; therefore, the amount you receive will usually be greater than that offered by a viatical settlement firm.
Like viatical settlements, living benefits are based on the expectation that you will die soon. But that doesn’t always happen. Some people who have been diagnosed as terminally ill don’t die as soon as expected or even recover from their condition. If you are one of those and have elected a living benefit, you won’t have to repay the money you received.
