As the largest form of group insurance in the world, the Federal Employee Group Life Insurance (FEGLI) plan covers over four million Americans. Since 1954, this program has enabled all Federal Employees and their families to have access to affordable life insurance.
However,as you approach retirement age, you want to start paying closer attention to your options. FEGLI is a decent plan, but the rates get extremely high, particularly after you turn 50.
In this article, I will go over just the highlights of how FEGLI works. For a more in depth overall look at how FEGLI works read this.
In this article we will focus our attention on Option B, and help you decide whether you should keep it after turning 50, or go to the private market place for better benefits at a lower cost.
First, I want to make sure you know what the four parts are. This way you can have a better understanding of how Option B works and how it fits in. Then we will drill down and look at Option B more in depth.
After reading this article, you will see that most people are not going to want to keep Option B once they get into their 50’s and beyond.
Let’s dive in…
FEGLI in Four Parts
This life insurance plan has four different coverage options. It is important to understand what each of them does, and how much they cost as you get older.
The four parts are:
- Option A
- Option B
- Option C
In this article the only thing I am going to say about Option C is that it is coverage you can get to cover your family. Specifically this is coverage you can get to cover your spouse, and your unmarried dependent children that are under the age of 22.
The focus of this article is on the options you have to get life insurance on your life as a Federal Employee.
Therefore, let’s look at how Basic, Option A, and Option B life insurance works. Then we will take a look specifically at how Option B stacks up against options that you may be able to go with instead in the private market place.
All Federal Employees are put into Basic coverage under FEGLI. This option is subsidized by the government, which pays one-third of the premium costs. You cover the rest. If you are a Postal Service employee the USPS will pay the full cost of the Basic coverage.
Basic coverage is calculated by rounding your salary up to the nearest $1000 and then adding $2000 to that figure.
So, if you’re earning $75,500 a year from the government, your Basic death benefit will be $78,000.
Before you turn 35, this death benefit is doubled, but this additional coverage reduces by 10 percent each year until you turn 45. Since we’re talking about insurance after you reach age 50, we won’t get into more detail on that part.
The Basic coverage is a great plan. It’s a great plan to keep while you are working as well as into retirement.
With the Basic plan, you can also get Accidental Death or Dismemberment. If you die as a result of an accident (on the job or elsewhere), you get double the death benefit, just as you would if you were 35 or younger.
As far as dismemberment goes, the rules are a bit horrible to consider. Nevertheless, if you lose two of the following in a work-related accident, you get the full benefit – sight in one eye, a hand, or a foot. If you only lose one, then you get half the benefit.
For many people the Basic coverage is not enough. Option A allows you to add an additional $10,000 of coverage which is nice to have. However, an extra $10,000 really isn’t all that much.
I suggest you go ahead and take it assuming you do need the additional coverage. The cost for Option A is very affordable.
The amount you have to pay for coverage does increase every 5 years once you reach age 35, but it’s still a good deal.
Many people that are under age 50 think that when they get into their 50’s or 60’s they won’t need to have life insurance anymore.
The theory is that life insurance is only needed when you are younger and raising a family. Once the kids are grown there’s no more need for coverage.
Although the kids may be grown, there are still a number of reasons why someone would need to own life insurance when they are 50+.
Obviously, you already know this. If you weren’t needing to have life insurance you probably wouldn’t even be reading this article.
So let’s presume you need additional life insurance coverage beyond the Basic coverage and what you can get with option A.
The question becomes…
As a Federal Employee should you keep your FEGLI Option B coverage, or should you obtain life insurance outside of FEGLI after your turn 50 years old?
Well, let’s take a look. Let’s assume you are 50 years old today, and that your Basic pay is $100,000.
Option B allows you to elect up to 5 times your salary in additional coverage. Let’s assume that you have the maximum amount which would be $500,000 of life insurance with Option B.
Most likely you get paid bi-weekly, but we are going to look at how much the costs work out to be on a monthly basis. The reason for doing this is that it is an easy way for us to compare the cost of FEGLI Option B with options available outside of FEGLI.
Coverage options outside of FEGLI are usually payable monthly. There are also options to pay annually, semi-annually, and quarterly.
At age 50 the monthly cost for FEGLI Option B is $119. It then increases quite a bit every 5 years as you can see in the chart below.
FEGLI Option B - Monthly Life Insurance Rates - $500,000 of Coverage
|Age 50 through 54||$119|
|55 through 59||$216.50|
|60 through 64||$476.50
|65 through 69||$585
|70 through 74||$1,040
|75 through 79||$1,950|
|80 and over||$2,860|
You can run rates for yourself using the FEGLI calculator by clicking here. You can put in your age, Basic pay, and select the amount of Option B coverage by choosing 1 to 5 times your Basic pay. The calculator is very easy to use.
Most people I talk to are not aware of just how high the rates get overtime. If you are in your 30’s or 40’s the rates are very affordable.
However, as you can see from the chart above, once you reach age 50 and beyond the amount you have to pay for coverage become outrageous.
So how do FEGLI Option B life insurance rates rates compare to what you would have to pay outside of FEGLI?
Let’s take a look.
Let’s say you are 50 years old and need life insurance coverage for another 15 years until you are 65 years old. Perhaps you are going to retire at age 65 and don’t foresee a need for life insurance in retirement.
Outside of FEGLI you could get a 15 year level term policy instead. Level term means that the premium will not change for the length of the level term period. In this case for 15 years.
For coverage outside of FEGLI you do need to qualify for it. The rates that you would have to pay depend on your medical history and other lifestyle habits.
Take a look at the chart below. Preferred plus is the best rate class you could be approved for. Preferred is the second best and so on.
A Standard rate class is a rating most people will receive that are in average health.
50 year old Male - Non Smoker - $500,000 - 15 year term policy - Monthly Rates
|Preferred Plus||Preferred||Standard Plus||Standard|
Remember, these rates will stay the some for the entire 15 years.
Now, let’s compare the total premium outlay of what a 50 year non smoking man would have to pay for FEGLI vs what you would pay with a plan outside of FEGLI over the course of 15 years.
FEGLI Option B Life Insurance vs. Coverage Outside of FEGLI $500,000 - Monthly Rates
|FEGLI - Monthly Cost||Outside Coverage - Preferred Plus||Outside Coverage - Preferred||Outside Coverage - Standard Plus||Outside Coverage - Standard|
|50 through 54||$119||$56||$65||$89||$107|
|55 through 59||$216.50||$56||$65||$89||$107|
|60 through 64||$476.50||$56||$65||$89||$107|
|Total Cost over the course of 15 years.||$48,720||$10,224||$11,700||$16,020||$19,260|
As you can see, the difference in what you have to pay over a 15 year time frame is tremendous.
If you are able to qualify for the absolute best rates, and can get approved at preferred plus your total cost over the course of 15 years is only $10,224. Compare that to $48,720 with FEGLI.
That is a savings of $38,496 over the course of 15 years!
However, let’s just assume you are in average health and get approved at the standard rate class. Your total cost over the course of 15 years is $19,260. Again FEGLI would cost $48,720 over the course of 15 years.
That is still a huge savings – $29,460 over the course of 15 years!
So if you are in average health or better you can save a lot of money on your FEGLI Option B coverage. Even if your health is a little below average you can still save a lot of money.
However, if your health is not so great then it is likely FEGLI option B will be the better option for you. For instance, if you:
- had a heart attack within the last year
- had a stroke
- have uncontrolled diabetes and are having complications from it
Also, if you smoke cigarettes you may not be able to save money. This is because smoker rates are much more expensive than non smoker rates especially once you get in your 50’s and beyond.
If you do use any other forms of tobacco other than cigarettes you can get approved for non smoker rates with some companies. Prudential is one of them.
What’s The Next Step
Go ahead and fill out the quote request form. You can also give me a call. I can answer any questions you may have a this point.
Also if you are trying to figure out how much coverage you need and/or how long you need it for I can help you determine that out as well.
If you decide that it makes sense for you to apply for coverage outside of FEGLI, then as an independent agent I can help you get that in place as well.
I’m a huge believer in having all the life insurance you need to protect your family. However, I don’t want you to pay more for it than you absolutely have to.
Call me today. Your family and your wallet will thank you.