By: Dan Miller, CFP®
In 1954, the Federal Government initiated the Federal Employees Group Life Insurance Program, also known as FEGLI. The program covers over 4 million Federal employees, retirees, and their families and is the largest group life insurance program in the world.
Most Federal employees have Basic Life Insurance under FEGLI, unless they specifically waive coverage. This amount is equal to the actual rate of annual basic pay, rounded to the next $1,000, plus $2,000. Basic Life Insurance also has coverage for accidental death and dismemberment. If an enrolled employee lost their eyesight or a limb, they may be eligible for Accidental Dismemberment benefits. Extra benefits under the Basic Life Insurance exist depending on the age of the employee.
However, because it is similar to group term life insurance, it does not accumulate any cash value. FEGLI is made up of Basic life insurance coverage and three options for additional insurance you can enroll in if needed. While the cost of Basic insurance is paid by both you and the Government, the Optional insurance is paid fully by you.
You can calculate the face value and premiums of different combinations of coverage using the FEGLI Calculator (https://www.opm.gov/retirement-services/calculators/fegli-calculator/).
Optional coverage in addition to Basic Life Insurance through FEGLI:
- Option A: Standard - $10,000. Doubles if death is accidental.
- Option B: Additional - 1-5 times your annual pay.
- Option C: Family – Insures eligible family members from 1-5 times of coverage. Each multiple equal to $5,000 if a spouse deceases and $2,500 at time of death of a child.
In case of death, FEGLI and the additional options are not the only form of benefit to be paid out. Any Social Security, CSRS or Federal Employee survivor benefit, worker’s compensation, or savings plan payment would be paid in addition to FEGLI.
Is FEGLI right for me?
Depending on what you need for coverage, how many dependents you have, and how long survivors will be dependent, FEGLI may or may not be the right option for you. As a Federal CSRS or FERS Employee, you do have insurances that are “free” including a survivor death benefit and Social Security survivor income.
- CSRS: Spouse or former spouse of employee who dies in service is entitled to 55% of CSRS employee’s accrued pension.
- FERS: Spouse or former spouse of employee who dies in service is entitled to receive
- Basic Employee Death Benefit = "½ the employee’s final salary (or hi-3 average, whichever is higher), PLUS a lump sum amount, roughly around $33k.”
- Return of FERS contributions with interest. Only applies to employees with less than 10 years’ service
- Survivor Annuity: If you die with more than 10 years of service, their spouse is entitled to 50% of FERS accrued pension.
- Social Security Survivor Benefit: Surviving eligible family members can get a monthly benefit dependent on amount of Social Security accrued.
After calculating what your needs are from life insurance, you can dig deeper into whether FEGLI is right for you, or if you need to shop around for a whole, term, or universal life insurance policy.
Downsides of FEGLI
FEGLI is not necessarily term or whole life. It has a cap on how much coverage you can get, which is 6x the salary. This may not cover your needs if you’re trying to take care of your spouse or dependents for a longer period of time.
FEGLI is often 2-3 times more expensive than term-life insurance because it can last beyond a specific known period of time. Premiums are not fixed, unlike whole life insurance, where rates continue to rise even through retirement. It is possible you will pay more in premiums for FEGLI than you would get as a death benefit from the policy. Another difference between FEGLI and whole life is the policy doesn’t build a cash value. This means if you were to cancel FEGLI for whatever reason, there is no cash value that you would receive.
Every Federal employee’s need for life insurance is unique. It is important to determine exactly what that need is and decide on what policy or combination of policies is best for you and your family. For some, FEGLI might work for the time being. However, you may get to a point where instead of carrying insurance, you have saved enough money to insure yourself. For others, you might need to weigh the pros and cons of term, universal or whole life insurance, as well.
Not all Federal retirees have coverage under FEGLI because there are certain requirements that must to be met. Contact the OPM Retirement Office to find out whether you are eligible.
If you have any questions about which option is the best fit for you and your family, please reach out to us and we would be happy to go through the different options with you.