Sponsored article by Tom Walker for Walker Capital Preservation Group
Federal Employee Group Life Insurance (FEGLI) is offered to all incoming Federal Employees (without requiring any underwriting) and provides extremely competitive pricing for traditional Death Benefit protection to young employees. Then, starting around age 45, the fact that there was no medical underwriting begins to work against anyone who does not have major health concerns. How so? Because the pricing inevitably starts to increase and continues to do so exponentially over the latter years of your career and even into retirement!
From age 30 to age 65 the cost of the FEGLI will increase by 2066% for every single participant – the marathon runner, the chain smoker, and everyone in between all see the same rate increases!
For those unable to qualify elsewhere, this may remain the most affordable approach to providing a legacy, but for the majority of federal employees there are more innovative and more affordable alternatives that can simultaneously protect you, your retirement, and your family!
When looking to evaluate your coverage, there are 3 main factors to consider in determining whether or not the FEGLI is the best option for you at this point in your life/career.
The first factor is your ability to qualify through the underwriting process for individual protection – generally determined by the combination of your age, health, and lifestyle habits (nicotine use, driving record, etc). The second is the time horizon for your protection needs – eventually most Feds are priced out of the FEGLI coverage (usually in their 50’s and 60’s) but not everyone needs coverage forever. Use this calculator to compare the cost of your FEGLI coverage today to what it will cost at age 65 (you may want to make sure you’re sitting down first). The third factor is a new one – you must determine what you want/need your life insurance to emphasize protecting you from…
While the Federal Employee Group Life Insurance program is one of the biggest group term policies on the planet, it is intended to provide a traditional death benefit… and the policy designs have seen about as much innovation as the Q-tip industry in recent decades (which is to say not much).
On the other hand, modern life insurance strategies have evolved powerful new features, called Accelerated Living Benefit Riders, to protect the insured during their lifetime.
What if you had a major stroke, a heart attack, or cancer… and lived?
Well it certainly beats the alternative, right!? But when we face that type of medical emergency our expenses usually go up and income often goes down while we recover, so how can we pay the bills during that time? With living benefit riders, any of those scenarios could qualify you to accelerate a portion of your death benefit to be utilized during your lifetime, however you see fit, to help you navigate that situation.
The optional portions of the FEGLI offer no accessibility while you still have a pulse, only a death benefit. So if you don’t have a sufficient emergency fund, or enough sick leave, then most feds would be forced to take a hardship withdrawal from the TSP. This last resort approach means that in addition to withdrawing the money you need for your medical expenses, your nest egg will also lose a considerable chunk to taxes and quite possibly an additional 10% to the early distribution penalty (for those under 59.5). That erosive combination of medical expenses and tax penalties has the potential to obliterate even the most carefully outlined retirement plan when these concerns are not sufficiently addressed.
With the exponential pace of medical innovation only being outpaced by the cost of receiving said medical care, “What if I live?” is the question that is now leading many to re-evaluate what they look for in a life insurance policy.
Taking the more flexible approach of employing Life Insurance with Living Benefit Riders allows a single policy to have numerous triggers for payment of that policy’s death benefit. This flexibility allows one policy to help address qualifying medical emergencies (like cancer, heart attack, or stroke) or help offset cost of aging concerns (like nursing home care) while still providing a death benefit legacy to your family (if the proceeds are not accelerated during your lifetime). It is like a Swiss Army Knife – allowing one monthly premium to do double, triple, or even quadruple duty without the added cost, risk, or hassle of buying multiple single-focus “use it or lose it” policies.
Questions to Ask About Your Coverage
Ask the following five questions to help determine whether you should stay in the FEGLI or explore individual portable insurance with Living Benefits:
1. What do I want my life insurance to protect – my family’s lifestyle after I pass or our lifestyle both during & after my time with them?
2. Can I get through underwriting to be eligible for individual coverage?
3. Will I be more likely to pass underwriting later in life if I choose to wait?
4. How long will I want/need protection to preserve my family’s lifestyle?
5. Do I have enough emergency funds set aside to offset the need for Living Benefit Riders?
Do not wait until the FEGLI is too expensive to begin comparing your insurance options!
By Tom Walker for Walker Capital Preservation Group
Since 2012 we have strived to help make identifying and understanding these risks a little easier for Federal employees nearing retirement so that they can learn to design a Thrift SPENDING Plan that empowers them to retire confidently!