Reg Jones Expert's View

Last week I described the circumstances under which an employee who wasn’t covered by the FEGLI Basic Insurance could enroll or, if covered, by one of FEGLI’s options, could increase the amount of coverage.

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 Insurance, Option A (Standard Optional Insurance) or Option B (Additional Optional Insurance) 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

You can assign FEGLI insurance 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. This might be done for reasons such as estate planning. 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.

Living Benefits

The law allows you 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 (similar to a “viatical settlement” in a private life insurance 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 Basic premiums. If you elect a partial benefit, your premiums would be reduced accordingly. 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 quickly as expected, while others may even recover from their terminal condition. If you are one of those who beats the odds, you won’t have to repay any of the money you received.