In the first four articles of this series, I focused on the four kinds of insurance provided under the Federal Employees’ Group Life Insurance program: Basic, Option A-Standard, Option B-Additional, and Option C-Family. Last week I described the circumstances under which an employee not covered by Basic FEGLI or one of its options could enroll or, if already enrolled, could increase coverage.
Now I want to close this series on life insurance by pointing out two special features of the FEGLI program. First, is your opportunity to assign your Basic, Option A or Option B benefits to another person or persons. Second, is 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
Since a change in law in 1994, you can transfer ownership and control of your Basic, Option A-Standard or Option B-Additional insurance to any individual(s), corporation or trust you want as part of an estate planning effort, to obtain cash before your death, or for other valid reasons. However, if you do that, you won’t be able to cancel your life insurance or make any future changes in your beneficiary. Once the deed is done, it’s done.
Note: There is one exception to your right to assign your life insurance benefits. You can’t do it 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.
Whether you are aware of it or not, 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.
Until 15 years ago that wasn’t an option for federal employees, retirees or compensationers with FEGLI coverage. Now the law allows you to elect what is called a "living benefit" if your treating 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. The good news is that 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, you will only be cashing in a portion of that policy. That can be done in multiples of $1,000.
If you elect a full living benefit, you won’t pay any more premiums. If you elect a partial benefit, your premiums would be reduced. Note: Retirees and compensationers may only elect full living benefits.
Obviously, if you elect a full living benefit, your beneficiary won’t be eligible for any Basic insurance benefit on your death. 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 quickly 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 a single cent of the money you received.