Expert's View

A living benefit is an accelerated payment of Basic FEGLI benefits to you, rather than to a beneficiary. Image: fizkes/

Last week I pointed out the circumstances under which an employee who wasn’t covered by Basic insurance under the Federal Employees’ Group Life Insurance program can enroll in it or, if already enrolled could increase the amount of optional coverage.

I’ll wrap this series up by pointing out two special features of the FEGLI program. First, your right to assign your Basic Insurance, Option A (Standard Optional Insurance) or Option B (Additional Optional Insurance) benefits to another person or persons. Second, your right to cash in your Basic insurance if 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

By law you can obtain cash before your death (or for other valid reasons, such as estate planning) by transferring ownership and control of your Basic, Option A (Standard Optional Insurance) or Option B (Additional Optional Insurance) to any individual(s), corporation or trust you want to.

Most commonly, this is done for estate planning purposes or to comply with terms of a divorce court order.

Just be aware that if you do that, you won’t be able to either cancel your life insurance or make any future changes in your beneficiary. Once you’ve made that assignment, it’s permanent.

Note: You can’t assign your life insurance benefits 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 viatical settlement companies in the private sector that will buy the insurance policies of people who are terminally ill. They purchase those policies at less than their face value. How much less depends on the individual’s life expectancy.

The FEGLI law allows you to do something similar—to elect what is called a “living benefit” if your physician provides a documented medical prognosis that you are terminally ill and have a life expectancy of nine months or less.

A living benefit is an accelerated payment of Basic FEGLI benefits to you, rather than to a beneficiary. If you are eligible for one, 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. However, there isn’t any profit margin included in a living benefit; therefore, the amount you receive will be more than that offered by a viatical settlement firm.

A living benefit may be elected only once, and that election can’t be reversed. So, if you elect a full living benefit, you’ll be cashing in your entire Basic policy. On the other hand, if you elect a partial living benefit, which can be done in multiples of $1,000. you will only be cashing in a portion of that policy.

If you are an employee who elects a full living benefit, you won’t pay any more premiums. If you elect a partial benefit, your premiums will be reduced. Note: Retirees may only elect full living benefits.

If you elect a full living benefit, your beneficiary won’t be eligible for any Basic insurance benefit. On the other hand, a partial benefit will leave him or her with the remainder of your policy. However, the dollar value of the remaining insurance amount will be frozen. It won’t change, even if your salary goes up.

Like viatical settlements, living benefits are based on the expectation that you will die soon after the payment is made. But that doesn’t always happen. Some people who have been diagnosed as terminally ill don’t die as soon as expected, while others may even recover from their condition. If you are one of those who beats the odds, you won’t have to repay any of the money you received.

Former head of retirement and insurance policy at the Office of Personnel Management, and longtime FEDweek contributor, Reg Jones is known throughout the federal workforce community as an authority on pay and benefits.

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