FEGLI Insurance for Federal Employees

If you are an employee of the U.S. government, then you and millions of your colleagues have access to the largest life insurance program in the world: the Federal Employees’ Group Life Insurance Program (FEGLI). It’s one of a number of employee benefits available to the federal civil service.

Created in 1954, FEGLI provides group term life insurance that may serve several purposes.

Federal employees depend on FEGLI for many reasons in the event of untimely death: income replacement, death benefit protection, coverage for debts or expenses that may overwhelm survivors, financial safeguards for young families, and other benefits.  

FEGLI often features a lower requirement for participation compared to other life insurance policies. For private-sector group life insurance – or just personal life insurance coverage in general – people are often required to undergo a medical examination or to meet other eligibility criteria.

The Government Kicks in for Basic Coverage

While FEGLI coverage is offered by most federal agencies, the coverage isn’t free to federal employees. And not all government agencies offer it, either.

FEGLI automatically covers most federal employees. This automatic coverage is called “Basic” life insurance coverage.

However, the cost of “Basic” insurance is shared. Employees pay for 2/3 of the cost of their coverage, while the U.S. government pays the balance. For postal employees, the USPS helps pay for FEGLI coverage.

Since FEGLI is term life insurance coverage, there is no cash value. Federal employees’ options are not limited to the Basic purchase coverage, however. They have three choices for “Optional” life insurance. Depending on your needs and the legacy you hope to leave, it’s valuable to know what is available to you.

To pursue Optional life insurance, you must elect to go beyond the Basic coverage. And, in contrast to Basic coverage, you pay the total bill for your Optional insurance, no matter which of the three coverage levels you select. There is no government contribution.

Weighing Your Options

It’s a prudent move to consult with a financial professional who is experienced in helping federal employees understand their benefits. That being said, you can follow these guidelines to understand the basics of different coverage options available to you.

Basic life insurance coverage is equal to your annual salary, rounded to the nearest $1,000, plus $2,000.

Then there are three levels of Optional coverage, conveniently categorized as A, B and C coverage. Here’s how they break down:

• Option A or Standard insurance adds $10,000 more of life coverage on top of Basic coverage.
• Option B or Additional insurance pays out at 1 to 5 times your salary in more life coverage.
• Option C or Family insurance equates to 1 to 5 multiples on lives of eligible family members.

You can see that figuring out Option C requires at least a good calculator. From that standpoint, federal employees may find it helpful to work with a financial professional who is skilled at counseling them on their options.

Under Option C each multiple equals $5,000 of coverage on a spouse and $2,500 of coverage on each eligible individual child, according to the Federal Benefits Information Center.

What Does Age Have to Do with It?

Whether you are a federal or postal employee, insurance premiums for Basic coverage aren’t based on your age.

Optional life insurance coverage is different. These premiums increase as a federal employee reaches a new five-year age bracket. For instance, say a federal civilian employee is 35 years old. Your rate at age 35 will change when you reach age 40, the start of the next age bracket.

Unfortunately for participating federal employees, from ages 50 through 60, premiums may skyrocket—as much as 200%. Premiums are calculated using actuarial tables on the likelihood of nearing the point where the policy could pay out.

Here’s another good thing to know. This increase simply maintains your existing level of protection — it doesn’t increase coverage.

Many federal employees reach their Minimum Retirement Age during this span from age 50 through 60. Weaving FEGLI coverage into your overall financial plan will help you understand what other life insurance options to consider and how they compare to FEGLI coverage.

Understanding that FEGLI is simply a death benefit, that it doesn’t have a cash value, and cannot be counted on to potentially provide long-term care benefits, often motivates federal employees to seek coverage that that provides more than death benefit proceeds.

They may seek some form of long-term care coverage, not to mention other care coverage benefits, to prevent them from becoming a financial burden to their families.

Who Gets It When You Are Gone

The Office of Federal Employees’ Group Life Insurance (OFEGLI) pays life insurance benefits in an order set by law. If an employee assigns ownership of their life insurance, OFEGLI will first pay out to the beneficiary designated. If there isn’t a designated beneficiary, the payout goes to the assignee.

In the case when an employee didn’t assign ownership, and there is a valid court order on file, OFEGLI will adhere and pay benefits in accordance with that court order.

If there is no assigned ownership and no court order to follow, benefits are paid as follows:

• To the beneficiary designated;
• If none, then to the widow or widower;
• If none, to the child(ren), with the share of any deceased child distributed among the descendants of that child (a court will usually have to appoint a guardian to receive payment for a minor child);
• If none, to the parents in equal shares or the entire amount to the surviving parent;
• If none, to the executor or administrator of the estate; or
• If none, to the next of kin as determined under the laws of the state where the annuitant or employee lived.

Having someone else decide who gets your life insurance payout should motivate you to keep your designated beneficiaries up-to-date. Divorces, remarriages, and new family additions are just some of the many life events that might warrant a review of beneficiaries for all your policies. This applies just as much to FEGLI coverage.

Providing updated addresses is important, too. You don’t want a beneficiary to lose the benefit you intended for them simply because they can’t be located.

Putting Your FEGLI Life Insurance Strategy in Order

As there can be many moving parts in FEGLI coverage, it’s best to consult a financial professional who has been down this road many times before.

This is an opportunity for you to receive experienced advice. Not only that, you can save time in getting the benefits you want paid out exactly as you want them to be. A benefits-knowledgeable financial professional can help you coordinate the rest of your federal employee benefits, too.

Are you ready to start? Use our “Find a Financial Professional” section to connect with someone directly. You can request a personal appointment or phone call to begin the discussion. Should you need a personal referral, call us at 877.476.9723.