Retirees of the federal government are eligible to participate in the Federal Employees’ Group Life Insurance (FEGLI) program. In this second of two articles about FEGLI, we discuss how FEGLI works at and during retirement. For an overview of FEGLI and the different coverage options you have while employed with the government, review Part 1 of this installment.
FEGLI Eligibility at Retirement
As part of your retirement application, you will complete Form SF 2818 to indicate if you want to carry your insurance coverage(s) into retirement. To retain FEGLI coverage at retirement, you have to retire on an immediate annuity and have been insured for the five years of service immediately before your retirement date.
If you meet the requirements, you may continue your life insurance coverage as a retiree even if you choose to postpone receipt of your pension payment. If you postpone receiving your pension, your FEGLI coverage stops until the date your pension begins.
Once you retire, your elections can be reduced or canceled at any time, but never increased. Your life insurance premiums, if applicable, will be withheld from your monthly pension.
FEGLI Basic Insurance
When you retire, the value of your Basic Insurance Amount (BIA) is locked in at your final annual salary rounded up to the next thousand plus $2,000. There are no Accidental Death and Dismemberment Benefits (AD&D) with Basic insurance at retirement.
Basic insurance has three reduction options that start at age 65, or at retirement if you work beyond age 65. You may choose to have no reduction, a 50 percent reduction, or a 75 percent reduction to your BIA.
With the No Reduction option, the full coverage amount remains throughout retirement, and the death benefit that is payable to your beneficiaries does not reduce.
The 50 percent reduction option decreases 1 percent per month until it reaches 50 percent of the original BIA.
The 75 percent reduction option decreases 2 percent per month until it reaches 25 percent of the original BIA.
Despite having the highest reduction rate, the 75 percent reduction option is the most popular choice because it becomes free at age 65 or at retirement, if later. The cost of carrying FEGLI into retirement depends on which option you choose and your age. The table below outlines the costs for each option before and after age 65:
** The cost is for each $1,000 of the Basic Insurance Amount.
|Age Period||No Reduction||50% Reduction||75% Reduction|
|Until Age 65||$2.5967 Monthly||$1.0967 Monthly||$0.3467 Monthly|
|Age 65 & Later||$2.25 Monthly||$0.75 Monthly||Free|
Example: Donna is 65 years old. She has a Basic Insurance Amount (BIA) of $105,000. She chooses to have no reduction to her coverage. Her premium cost is $2.25 times 105, or $236.25 per month.
FEGLI Option A, B, and C Insurance
Similar to Basic insurance, you must have the level of Optional coverage that you wish to carry into retirement for five years immediately before retirement.
Option A (Standard) has an automatic 75 percent reduction that starts at age 65 or at retirement, if later. The coverage amount reduces by 2 percent each month until it reaches 25 percent of the pre-retirement amount of $10,000. Only $2,500 is payable as a death benefit once the full reduction has been reached. Premiums become free at age 65.
Option B (Additional) and Option C (Family) work alike in retirement. Both insurance coverages have multiples of 1,2,3,4, or 5. You must choose how many of the Option B and Option C multiples you want to keep. You may choose to have some, or all of those multiples fully reduced or not reduced beginning at age 65 or at retirement, if later.
This election is made at the time of retirement. But, if you retire before age 65, you will also have a second opportunity shortly before your 65th birthday to choose whether to keep or change the elections you made at retirement.
If you choose Full Reduction, the value of each multiple of Option B and/or Option C reduces by 2 percent each month until the original amount has been reduced by 100 percent. Once fully reduced, no benefits are payable for Option B or Option C. Both insurance plans are free once the coverage starts to reduce.
If No Reduction is chosen, then Option B and/or Option C coverage will not reduce at all. After age 65, you will continue to pay premiums appropriate to your age band. The premiums go up substantially as you age.
FEGLI Living Benefits
Living benefits are paid to you while you are still living, rather than paid to a beneficiary or survivor when you die. You may receive living benefits if you are terminally ill with a life expectancy of nine (9) months or less.
Living benefits are only available with Basic insurance. Employees can elect either a full living benefit or a partial living benefit. However, retirees can elect only a full living benefit.
Designation of Beneficiary & Order of Precedence
The best way to designate or change your FEGLI beneficiaries is by completing Form SF 2823. You should review your beneficiaries after any significant life event such as marriage, divorce, or death. It is also important to complete the change of beneficiary form if you want your proceeds paid to a person or entity not listed in the order of precedence or paid in a different sequence than the order of precedence.
If there is not a valid designation on file when you pass away, FEGLI benefits are payable in this order:
1. To your widow or widower.
2. To your children in equal shares, with the share of any deceased child distributed among that child’s descendants.
3. To your parents in equal shares or the entire amount to your surviving parent.
4. To the executor or administrator of your estate.
5. To your next of kin under the laws of the state where you lived at the time of your death.
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