FEGLI Into Retirement For better or worse?

Federal Benefit Advisory

We are asked many times if the employee can carry FEGLI into retirement. The answer is yes, however, a larger question should be; ‘SHOULD YOU CARRY FEGLI INTO RETIRMENT?

First, before you make this important decision, you need to clarify, for yourself, three basic things:

1) Is there need?

2. What is the cost?

3. Is there a better way to achieve this goal?

For the sake of this article, we will presume you have a strong need, so let’s talk about the cost and what do you get for it and how much you are going to pay for it?

Basic Insurance

When you were hired you automatically received FEGLI Basic insurance. The coverage is equal to your base pay rounded up to the next $1,000 plus $2,000.

If you decide to keep this coverage into retirement you will have three choices:

  • 75 percent reduction
    • The 75 percent reduction, you’ll continue to pay the same premiums for this coverage that you did while an employee, and you’ll do that until you reach age 65. At that point, you won’t have to pay any more premiums and the face value of that insurance will decline by 2 percent per month until it reaches 25 percent of its original amount
  • 50 percent reduction
    • The 50 percent reduction, your Basic insurance will be reduced by 1 percent per month until it reaches 50 percent of its face value. For that enhanced benefit, you will have to pay higher premiums.
  • No reduction.
    • The no reduction option, you’ll pay even higher premiums.

Option A (Standard Insurance)

Offers an $10,000 worth of coverage, you will pay fully the premium.  The premium you will find rather easy when you are younger, however, they do increase as time passes. Premium deductions terminate when you reach your 65th birthday. Then, your Option A insurance will automatically decline by 2 percent per month until it reaches 25 percent of its face value. You are required, if you want Option A, to also elected to be covered by Basic insurance

Option B (Additional Coverage)

  • In choosing Option B, your coverage amount is equaled one, two, three, four or five times your annual basic pay, after rounding up to the next $1,000.
    • At retirement, you’ll be offered the opportunity to retain that coverage. If you do, you’ll continue to pay the full cost of premiums, which, unfortunately, will rise as you age.
    • If you decide to keep this coverage, it is imperative that you assess your need of insurance, because I can assure you, if you live long enough, YOU WILL CANCEL THIS COVERAGE! This option will become UNAFFORDABLE TO ANYONE.
      • If you still decide to keep this coverage, you can either cut that cost by reducing the number of multiples or you can just let the dollar value of that coverage decline beginning at age 65 at a rate of 2 percent per month for 50 months until it reaches zero. Or you can eliminate the cost entirely by canceling the coverage.

Option C  (Family Coverage)

  • The Option C provides coverage for your spouse and eligible dependent children.  Like the options above, you will pay the full premiums. 
    • You may elect up to five multiples of coverage, with each multiple equaling $5,000 for your spouse and $2,500 for each of your children.
    • The premium cost per multiple is a function of your age.
    • This coverage on children applies only up to age 22 and becomes free after age 65, when the coverage declines by 2 percent per month for 50 months until it reaches zero.
  • What are your options for consideration; to keep or not to keep?
    • Assess closely your need.
    • Do you have other life insurances double covering these insureds?
    • Sharpen your pencil, grab some paper and calculator and project your cost into the future.
    • Example of coverage and costs:
      • If Basic, OPA, OPB,  OPC = $372,000.00 
      • Your premiums at:
        • Age 60 = $5,760.00 Annually
        • Age 70 = $9,570.00 Annually
        • Age 75 = $16,300.00 Annually
        • Age 80 = $23,000.00 Annually
      • Now, decide when you will cancel the coverage as ‘Unaffordable’

Do you have an alternative, another option? Yes, there are a thousand plans to replace the expensive federal plan with your own private coverage.  The advantages may include:

  • Affordability, the remainder of your life.
  • Coverage more in line with your needs.
  • Ease of change or adding of beneficiaries
  • Building of a policy that provides benefits to be used a number of ways:
    • Cash Value, eventually pays the premium, continuing the coverage.
    • Cash Value used as a method of ‘Tax Free Income’
    • A return of premium, when need of coverage is no longer required.

When and how do you find the answers to the questions important to you?

Email: info@federalbenefitadvisory,com and ask for a planner to call you.

George

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