The Pros and Cons of FEGLI and Why Consider Changing After 40 FEGLI: The Good, The Bad, and the Increasing Costs
www.psretirement.com 2 202408PSRFEGLIGuide Table of Contents I. Introduction 3 II. Understanding FEGLI 4 What is FEGLI? 4 Basic Description and Coverage Options 4 Eligibility and Enrollment Process 4 III. The Good: Benefits of FEGLI 5 Affordable Basic Coverage 5 Automatic Enrollment 5 Supplemental Options 6 Convenience and Portability 6 IV. The Bad: Drawbacks of FEGLI 7 Cost of Supplemental Coverage 7 Limited Coverage Amounts 7 No Cash Value 7 V. Reasons to Stop Buying FEGLI After 40 8 Increasing Premiums 8 Alternative Options 8 Financial Planning and Needs Assessment 8 Health and Lifestyle Considerations 9 Retirement Planning 9 VI. Conclusion 10 VII. Additional Resources 10
www.psretirement.com 3 202408PSRFEGLIGuide Planning for retirement is a crucial part of financial security, and life insurance plays a key role. The Federal Employees Group Life Insurance (FEGLI) program provides life insurance coverage to federal employees. This book explores the benefits and drawbacks of FEGLI and why it is wise for federal employees to consider stopping their FEGLI coverage after age 40. Understanding these aspects will help federal employees make informed decisions about their life insurance needs and overall financial planning. I. Introduction
www.psretirement.com 4 202408PSRFEGLIGuide What is FEGLI? Eligibility and Enrollment Process Basic Description and Coverage Options FEGLI is the world's largest group life insurance program, providing coverage to millions of federal employees and their families. Established in 1954, it offers basic life insurance and three optional types of coverage. The Office of Personnel Management (OPM) administers the program, and private insurance companies provide the life insurance under contract with the federal government. Most federal employees are eligible for FEGLI coverage. New employees are automatically enrolled in the Basic coverage and can enroll in additional coverage without a medical exam if they do so within 60 days of starting their job. After this initial period, employees can still enroll in or increase their coverage, but they must provide evidence of insurability, typically through a medical exam. • Basic Coverage: This is automatically provided to most federal employees and is equal to the employee’s annual salary rounded up to the next $1,000, plus an additional $2,000. The federal government pays onethird of the premium, making it an affordable option for employees. • Option A (Standard Optional Insurance): This provides an additional $10,000 of coverage. • Option B (Additional Optional Insurance): This allows employees to purchase coverage equal to one, two, three, four, or five times their annual salary. • Option C (Family Optional Insurance): This provides coverage for the employee’s spouse and eligible children, with multiple coverage units available. II. Understanding FEGLI
www.psretirement.com 5 202408PSRFEGLIGuide Affordable Basic Coverage Automatic Enrollment One of the major benefits of FEGLI is the affordability of the Basic coverage. The government subsidizes one-third of the premium cost, making it an economical choice for federal employees. Premiums are conveniently deducted from employees' paychecks, simplifying the payment process. The subsidized nature of this coverage makes it accessible to a wide range of employees, including those who may not qualify for private life insurance due to health issues. Another significant advantage is automatic enrollment. Most new federal employees are automatically enrolled in Basic coverage, which provides immediate life insurance protection without any action required. This automatic enrollment ensures that employees are covered from the start of their employment, providing peace of mind for them and their families. The lack of a required medical exam for Basic coverage further enhances its accessibility, especially for employees with pre-existing health conditions. III. The Good: Benefits of FEGLI
www.psretirement.com 6 202408PSRFEGLIGuide Convenience and Portability Supplemental Options FEGLI is seamlessly integrated with federal employment, making it a convenient option for employees. The premiums are automatically deducted from paychecks, simplifying the payment process. Additionally, FEGLI coverage can be continued into retirement if certain conditions are met, providing ongoing protection for retirees. This portability is a significant benefit, ensuring continuous coverage even after an employee leaves federal service. FEGLI offers three optional coverages that employees can choose to enhance their life insurance protection: Option A: Provides an additional $10,000 of coverage, which can be valuable for those needing extra protection at a relatively low cost. Option C: Provides coverage for an employee’s spouse and eligible children, ensuring that the entire family is protected. This option offers multiple coverage units, allowing employees to select the amount that best meets their family’s needs. Option B: Allows employees to purchase additional coverage equal to one to five times their annual salary. This flexibility enables employees to tailor their life insurance coverage to their specific needs and financial situation.
www.psretirement.com 7 202408PSRFEGLIGuide Cost of Supplemental Coverage Limited Coverage Amounts No Cash Value While Basic FEGLI coverage is affordable, the cost of supplemental coverage (Options A, B, and C) can be significantly higher. Premiums for these options increase with age, making them progressively more expensive as employees grow older. This can be particularly burdensome for employees who continue to carry large amounts of supplemental coverage into their later years. The age-based premium increases can result in substantial financial strain, especially for fixedincome people. FEGLI may not provide sufficient coverage for all employees' needs. The maximum coverage available through Option B is five times an employee's salary, which might need to be revised for those with high financial obligations, such as significant debt or dependent family members requiring extensive support. Additional life insurance coverage beyond FEGLI may be necessary for these employees to ensure their families are fully protected. Unlike whole life insurance policies, FEGLI does not build cash value. Whole life policies often include a savings component that accumulates cash value over time, providing a potential source of funds that can be borrowed against or withdrawn. FEGLI, however, is purely term insurance and does not offer this savings feature. Consequently, employees do not benefit from any investment or savings component with FEGLI, which may be a disadvantage for those seeking a policy that offers both protection and cash value accumulation. IV. The Bad: Drawbacks of FEGLI
www.psretirement.com 8 202408PSRFEGLIGuide Increasing Premiums Alternative Options Financial Planning and Needs Assessment The cost of FEGLI supplemental coverage increases significantly with age. Employees over 40 may find that Options B and C premiums become prohibitively expensive, making FEGLI less costeffective than other life insurance options. As premiums rise, the financial burden can become unsustainable, particularly for those nearing retirement or already on a fixed income. Private term life insurance policies often offer more competitive premiums and flexible coverage options than FEGLI. For many employees over 40, switching to a private policy can result in lower costs and better coverage. Shopping around and comparing different policies is advisable to find the best rates and terms that meet individual needs. By age 40, many employees' life insurance needs have changed. Children may be older and more financially independent, and mortgages or other debts may be paid down or paid off. Conducting a thorough assessment of current financial obligations and dependents can help determine the appropriate amount of life insurance coverage. Reducing or eliminating unnecessary coverage can free up funds for other financial goals, such as retirement savings. V. Reasons to Stop Buying FEGLI After 40
www.psretirement.com 9 202408PSRFEGLIGuide Health and Lifestyle Considerations Retirement Planning As people age, their health status and lifestyle choices may change. Employees in good health may qualify for lower premiums with private insurers compared to the age-based increases in FEGLI. Conversely, those with health issues might find better-tailored policies that accommodate their specific needs. Personalized policies can provide more appropriate coverage at a lower cost. After 40, the focus of financial planning often shifts from life insurance to building a robust retirement fund. Prioritizing retirement savings over highcost life insurance premiums can better prepare employees for a financially secure retirement. Contributions to retirement accounts, such as the Thrift Savings Plan (TSP) or IRAs, should be maximized to ensure a comfortable retirement.
www.psretirement.com 10 202408PSRFEGLIGuide VI. Conclusion FEGLI provides valuable life insurance coverage for federal employees, particularly at the start of their careers. However, as employees age, the cost of supplemental coverage increases, making it less attractive. Employees can make informed decisions about their life insurance coverage by evaluating alternative options, conducting a needs assessment, and prioritizing retirement savings. Understanding the benefits and drawbacks of FEGLI and the reasons to consider stopping coverage after age 40 will help federal employees achieve their financial goals and ensure a secure future for themselves and their families. • FEGLI Official Resources: Visit the Office of Personnel Management (OPM) website for detailed information on FEGLI coverage options, premiums, and enrollment processes. • Life Insurance Comparison Tools: Use online tools to compare life insurance policies and premiums from different insurers. • Financial Planning Resources: Consult financial planning resources specifically designed for federal employees, such as retirement calculators, budgeting tools, and investment guides. • Professional Financial Advisors: Seek advice from certified financial planners or advisors with expertise in federal benefits to tailor a comprehensive financial plan to your needs. VII. Additional Resources
www.psretirement.com 11 202408PSRFEGLIGuide Disclosure Not affiliated with the Thrift Savings Plan or any government entity. The content, listings, links, location data, or references provided in this eBook and related website are for informational purposes and convenience only and should not be considered personalized financial advice. Opinions expressed reflect the author's judgment as of the publication date and may change based on economic and market conditions. Prior to implementing any discussed ideas or strategies, seek counsel from a qualified professional. The suitability of every investment varies based on individual factors such as financial goals and risk tolerance. Utilizing policy cash value may reduce benefits and incur tax penalties. Insurance product guarantees depend on the issuing company's claims-paying ability. Taking withdrawals from certain accounts prior to age 59½ may have tax implications. Investment, tax, and legal information presented are general and should not be construed as specific advice. Consult an attorney, tax, or financial professional for tailored guidance. Working with a highly-rated advisor does not ensure superior performance. Ratings may be based on visitor evaluations and advisor activity. Contact the advisor directly for criteria details. The professionals listed on this website are independent entities and are not affiliated with the website. Any marketing and/or compliance requirements are the sole responsibility of the professional listed. Their listing, inclusion, or published content does not constitute an endorsement or recommendation. Conduct due diligence and verify credentials before engaging in their services. By accessing this eBook or associated website, you acknowledge your responsibility to conduct thorough research and seek professional guidance before making financial decisions. The website and affiliates disclaim liability for actions taken based on the content provided. This eBook and associated website are for informational purposes only and do not recommend purchasing any life insurance, annuity, or investment product. Information herein has not been reviewed by any relevant companies, and mentioning such does not establish mutual liability or responsibility between parties.
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