Retirement & Financial Planning Report

There are two features of the Federal Employees Group Life Insurance (FEGLI) program that are not well known nor understood but could benefit you in specific situations.

First, you can irrevocably assign your life insurance benefits to another person or persons. Second, you can cash in your Basic insurance when 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 transfer ownership and control of your Basic, Standard Optional, and Additional Optional insurance to any individual(s), corporation or irrevocable trust (with one exception: you can’t transfer ownership if a court has issued a decree of divorce, annulment or legal separation and specifically stated that your FEGLI benefits must be paid to someone else). If you make an irrevocable transfer, you won’t be able to cancel your life insurance or make any changes in your beneficiary.

Living Benefits — Anyone who is terminally ill and has a life expectancy of nine months or less may elect what is called a living benefit. It’s an accelerated payment of Basic life insurance benefits to the policyholder, rather than to a beneficiary or survivor. Only Basic insurance can be cashed in.

A living benefit may be elected only once, and that election cannot be reversed. So, if you elect a full living benefit, you will be cashing in your entire Basic policy. 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. With a full living benefit, you would no longer pay any premiums. With a partial benefit, your premiums would be reduced. Note: Retirees and compensationers may only elect full living benefits.

Clearly, if you elect a full living benefit, your survivors will not be eligible for any Basic insurance benefit upon your death. A partial benefit will leave them with the remainder of your policy. However, you need to understand that the dollar value of the remaining amount will be frozen. It will never change, even if your salary goes up.

If you are eligible for a FEGLI living benefit, 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. Fortunately, there is no profit margin included in a living benefit; therefore, the amount you receive will usually be higher than that offered by a viatical settlement firm.

See also, FEGLI coverage after retirement at ask.FEDweek.com