Expert's View

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Reg Jones

Last week I wrote about the Federal Employees’ Group Life Insurance program through the eyes of a current employee. This week I want to focus on those of you who are at or near retirement. When you retire you’ll have to make some decisions about your FEGLI coverage. Specifically, you need to decide which of those benefits you want to keep, which includes the consideration of how much you are willing to pay.

Basic Insurance
As I pointed out last week, when you were first hired you were automatically covered by Basic insurance, unless you declined it. That coverage is equal to your base pay – the amount from which retirement deductions are taken – rounded up to the next $1,000 plus $2,000.

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When you retire, you’ll be offered three choices for your Basic insurance coverage: a 75 percent reduction, a 50 percent reduction, or no reduction. If you chose the 75 percent reduction, you’ll continue to pay the same premiums for this coverage that you did while an employee, and you’ll do that until you reach age 65. At that point, you won’t have to pay any more premiums and the face value of that insurance will decline by 2 percent per month until it reaches 25 percent of its original amount.

If you choose the 50 percent reduction, your Basic insurance will be reduced by 1 percent per month until it reaches 50 percent of its face value. For that enhanced benefit, you will have to pay higher premiums.

If you chose the no reduction option, you’ll pay even higher premiums.

Option A – Standard Insurance
If you elected to be covered by Basic insurance, you had the option of electing an additional $10,000 worth of coverage at your own expense. While the premium rates are modest for younger employees, they increase over time. If you haven’t already canceled that coverage – which you can do at any time – premium deductions will stop at the end of the calendar month in which you reach your 65th birthday. At that point, your Option A insurance will automatically decline by 2 percent per month until it reaches 25 percent of its face value.

Option B – Additional
If you elected Option B, you were able to choose a coverage amount that equaled one, two, three, four or five times your annual basic pay, after rounding it up to the next $1,000. At retirement, you’ll be offered the opportunity to retain that coverage. If you do, you’ll continue to pay the full cost for it, which will continue to rise as you grow older. You can either cut that cost by reducing the number of multiples or you can just let the dollar value of that coverage decline beginning at age 65 at a rate of 2 percent per month for 50 months until it reaches zero. Or you can eliminate the cost entirely by canceling the coverage.

Option C – Family
If you elected Option C, you could provide coverage for your spouse and eligible dependent children under one policy at your own expense. Just as with Option B, you could elect up to five multiples of coverage, with each multiple equaling $5,000 for your spouse and $2,500 for each of your children. The premium cost per multiple is a function of your age.

Assuming that you haven’t already canceled that coverage as your family situation changed—the coverage on children applies only up to age 22, for example—it will be free after age 65. Then it will automatically decline at a rate of 2 percent per month for 50 months until it reaches zero.

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