Reg Jones Expert's View

The federal government provides a number of options under the Federal Employees’ Group Life Insurance program (FEGLI). When you were first hired, you were automatically covered by Basic insurance unless you declined that coverage. Basic insurance is term insurance. It has no cash value; its value is in its death benefit.

The amount of that coverage is equal to your base salary rounded up to the next $1,000 plus $2,000. As your salary increases, so does the amount of your coverage and thus the premium cost to you. The government covers two-thirds of the premiums and you pay the rest– 32.5 cents per month for each $1,000 of coverage – except that the Postal Service covers the full cost for its active employees (but not for its retirees).

When you retire, you’ll be offered three choices: the 75 percent reduction in your Basic insurance, a 50 percent reduction, or no reduction. If you chose the 75 percent reduction, you will continue to pay the same premiums for that insurance that you did while an employee and you’ll do that until age 65. At that point, you’ll stop paying any premiums and the value of your Basic insurance will decline at a rate of 2 percent per month until it reaches 25 percent of its original value.

If you choose the 50 percent reduction, your Basic insurance will be reduced by 1 percent per month starting until it reaches 50 percent of its face value. For that benefit, you will pay a higher premium: $1.035 per month for each $1,000 of coverage.

If you chose no reduction in your Basic insurance, you’ll pay even higher premiums: $2.13 per month for each $1,000 of coverage.

Depending on your circumstances, the payment of higher premiums may be worth the cost, especially if they provide you peace of mind.

Next week we’ll start looking at the kinds of optional life insurance available to you.

Read more on FEGLI Coverage After Retirement at ask.FEDweek.com