When you retire, you’ll be offered three choices. Image: Olivier Le Moal/Shutterstock.com
By: Reg JonesAssuming that you are enrolled in the FEGLI when you retire, you’ll have to make two decisions. First, which benefits do you want to keep. Second, how much are you are willing to pay for them.
Basic Insurance
As I pointed out in last week’s article aimed at current feds, when you were first hired you were automatically covered by Basic insurance unless you declined that coverage. That benefit is equal to your Basic pay – the amount from which retirement deductions are taken – rounded up to the next $1,000 plus $2,000. As your salary increases so does your coverage. The government pays two-thirds of the premiums, and you pay the rest.
When you retire, you’ll be offered three choices: a 75 percent reduction in your Basic insurance, a 50 percent reduction, or no reduction at all. If you chose the 75 percent reduction, you’ll continue to pay the same premiums for that coverage that you did while you were an employee, and you’ll do that until you reach age 65. While you won’t have to pay any premiums after age 65, the value of your Basic insurance will decline by 2 percent each month until it reaches 25 percent of its face value.
If you choose the 50 percent reduction, it 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 much higher premiums.
In addition to Basic there are three other kinds of life insurance. I touched on them briefly in my last article. Now I want to explain each of them in greater detail.
Option A – Standard Insurance
If you are covered by Basic insurance and bought an additional $10,000 worth of coverage at your own expense, the premiums you pay 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 to be covered by Option B, you bought an amount equal to 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 the same coverage you had as an employee. If you do, you’ll continue to pay the full cost of that coverage, which will continue to increase as you grow older.
You’ll also have the option of reducing that cost by either changing the number of multiples or by allowing the dollar value of that coverage to decline beginning at age 65 at a rate of 2 percent per month for 50 months until it reaches zero.
Option C – Family
Option C allows you to provide coverage for your spouse and eligible dependent children under one policy at your own expense. Just like Option B, you can 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. However, that coverage is free after age 65 when it will automatically decline at a rate of 2 percent per month for 50 months until it reaches zero.
A Closing Thought
The Federal Employees’ Group Life Insurance program is a time-tested and efficient way to get life insurance at a reasonable price; however, it isn’t the only option available to you. There are other ways to prepare for the future, including life insurance bought through the private sector that can take many forms, not to mention investing through the Thrift Savings Plan and in other ways, and long-term care insurance through the federal FLTCIP program or other insurers.
The mix is up to you. Just don’t leave your decision making until it’s too late.
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