FEGLI Option B—Important to Have, or No?

Mar 12, 2018

option

What is FEGLI?

The federal government offers life insurance known as the Federal Employees Group Life Insurance. Like most options, it has advantages and disadvantages.

FEGLI Basic insurance coverage is equal to one-year base pay rounded up to the next thousand plus $2,000. This benefit is provided without a required medical exam and is subsidized 33% by the government (100% for postal employees).

It is currently priced at 0.15 per $1,000 of coverage each pay period. Also, the basic plan is supplemented free of charge starting at age 35 with a 10% increase in benefit each year until age 45. The supplemental benefit is removed at age 45.

FEGLI basic coverage may be a good option but should you purchase supplemental coverage separately? Let’s look and see.

Beyond Basic

  • Option A adds $10,000 to the benefit amount and is priced in 5-year brackets, increasing dramatically at age 55.
  • Option B lets you add a multiple of your salary to the insurable amount, up to 5 times your base salary. It’s based on your current age and adjusts at 5-year intervals.
  • Option C provides some coverage for spouses and dependents in multiples of $5,000 and $2,500 respectively. Their costs also adjust in 5-year increments.

A Closer Look at Option B

Major decisions involve Options B and C because the cost per thousand dollars of coverage on the basic plan is inexpensive and doesn’t change with age (until retirement).

One easy thing about Option B is if you elect additional coverage within 60 days of hire, there are no health requirements and the premium is deducted from payroll. However, if you miss the initial 60-day window, you’ll have to provide evidence of good health (at your own expense), wait for a qualifying life event, or for the Office of Personnel Management to have a rare Open Season.

Just remember, the cost of Option B in your later years could get expensive.

Alternatives

An alternative is using the marketplace to find term life insurance at significantly less cost as you age because it has a fixed, or “level” payment, and it provides better policy options. Also, individual policies are not affected by a change in your employer.

Rate Comparison

Here is an example of a 38-year-old federal employee who wants the max amount of Option B. He elects 5 times his annual pay of $39,400 (rounded to $40,000) totaling $200,000. The cost for Option B is $13/month. This is a good, or better than any preferred rates available.

However, when he is 55 years old, his monthly cost for Option B will rise to over $100/month. This is more than double the best rates available in the marketplace for a 55-year old rated preferred. He would’ve been better off taking a 20 or 30-year term policy initially.

If you have health issues, things get even trickier.

Of course, this is a personal decision and should largely be determined by your health. Healthy employees may want to look elsewhere. But if you are concerned about your health rating, electing FEGLI and shopping the marketplace may be a smart decision. After all, you can always cancel coverage once you have a better policy in place.

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