Key Takeaways:

1. Understanding the changes and constants in FEGLI coverage during retirement helps ensure continuous and adequate life insurance protection.
2. Awareness of premium adjustments, benefit amounts, and eligibility criteria is crucial for effective financial planning.

FEGLI for Retirees: What Changes and What Stays the Same

The Federal Employees Group Life Insurance (FEGLI) program provides essential life insurance coverage to federal employees, offering financial protection for their families. As federal employees transition into retirement, it’s important to understand how their FEGLI coverage changes and what aspects remain the same. This article explores the continuation of coverage, premium adjustments, benefit amounts, and eligibility criteria for retirees under the FEGLI program.

Coverage Continuation

One of the key concerns for federal employees nearing retirement is whether their FEGLI coverage will continue. The good news is that FEGLI coverage can continue into retirement, provided certain conditions are met.

Basic Coverage

1. Automatic Continuation: Basic FEGLI coverage generally continues automatically for retirees who meet the eligibility criteria. This ensures that retirees maintain a foundational level of life insurance protection.
2. Eligibility Criteria: To continue Basic coverage, retirees must have been enrolled in FEGLI for the five years of service immediately before retirement or since their first opportunity to enroll. This requirement helps ensure that employees do not enroll in coverage shortly before retirement just to take advantage of the benefit.
3. Cost Structure: While the federal government contributes to the cost of Basic coverage for active employees, retirees are responsible for paying the full premium. However, retirees can choose to reduce their coverage to minimize costs.

Optional Coverage

1. Election at Retirement: Retirees have the option to continue their Optional FEGLI coverage (Options A, B, and C) into retirement. To do so, they must elect to continue this coverage at the time of retirement.
2. Eligibility Criteria: Similar to Basic coverage, retirees must have been enrolled in the Optional coverage for the five years immediately before retirement or since their first opportunity to enroll.
3. Coverage Reduction Options: Retirees can choose to reduce or eliminate Optional coverage to manage premium costs. This flexibility allows retirees to adjust their life insurance coverage based on their changing financial needs.

Premium Adjustments

Premium costs for FEGLI coverage can change significantly upon retirement. Understanding these adjustments is crucial for retirees to manage their budgets effectively.

Basic Coverage Premiums

1. Post-Retirement Costs: After retirement, retirees are responsible for paying the full cost of their Basic FEGLI coverage. This is a change from the cost-sharing structure in place during active employment, where the federal government paid a portion of the premium.
2. Reduction Options: Retirees can opt for a 75% reduction in Basic coverage, where the coverage amount reduces by 2% per month starting at age 65, until it reaches 25% of the original amount. This option significantly reduces the premium costs.
3. No Reduction Option: Retirees can also choose to maintain the full amount of their Basic coverage into retirement, but this choice comes with higher premiums. Understanding the cost implications of maintaining full coverage is important for financial planning.

Optional Coverage Premiums

1. Age-Based Rates: Premiums for Optional FEGLI coverage (Options A, B, and C) continue to be age-based in retirement. As retirees age, the cost of maintaining these optional coverages increases.
2. Option A (Standard Optional Insurance): Provides an additional $10,000 in coverage. Premiums for Option A increase in five-year age brackets and can become more expensive over time.
3. Option B (Additional Optional Insurance): Allows retirees to choose coverage in multiples of their salary. The cost of this coverage can rise significantly as retirees age, making it important to review the need for this level of coverage periodically.
4. Option C (Family Optional Insurance): Covers the retiree’s spouse and eligible dependent children. Similar to Options A and B, the premiums for Option C increase with age, impacting the affordability of maintaining this coverage in retirement.

Benefit Amounts

The benefit amounts provided by FEGLI can change upon retirement, affecting the financial protection available to retirees and their beneficiaries.

Basic Coverage Benefits

1. Full Coverage Amount: Retirees who choose to maintain their full Basic coverage will have their original benefit amount continued into retirement. This provides substantial financial protection for their beneficiaries.
2. 75% Reduction Option: Retirees who opt for the 75% reduction will see their coverage amount decrease over time, starting at age 65, until it reaches 25% of the original amount. This reduction can impact the total benefit available to beneficiaries, so it’s important to consider the long-term implications of this choice.
3. Choosing Coverage Level: The decision to maintain full coverage or opt for the reduction should be based on the retiree’s financial needs, the potential premium costs, and the overall financial plan for providing for their beneficiaries.

Optional Coverage Benefits

1. Option A Benefits: The $10,000 coverage amount for Option A remains fixed, but the premiums increase with age. Retirees should consider whether this additional coverage is worth the rising costs.
2. Option B Benefits: The benefit amount for Option B is based on the multiples of salary chosen. Retirees should evaluate whether the high premium costs in later years justify maintaining this level of coverage.
3. Option C Benefits: Coverage for a spouse and eligible dependents remains fixed based on the multiples selected. As with other optional coverages, retirees need to assess the value of this coverage against the increasing premiums.

Eligibility Criteria

Eligibility criteria for continuing FEGLI coverage into retirement are essential for ensuring that retirees maintain their life insurance benefits.

Enrollment Duration

1. Five-Year Rule: To be eligible to continue FEGLI coverage into retirement, retirees must have been enrolled in the program for the five years of service immediately before retirement or since their first opportunity to enroll. This rule applies to both Basic and Optional coverage.
2. Continuous Coverage: Maintaining continuous FEGLI coverage during the five-year period is crucial. Any lapses in coverage can affect eligibility for continuing the benefits into retirement.

Application at Retirement

1. Electing Coverage: Retirees must elect to continue their FEGLI coverage at the time of retirement. This involves completing the necessary forms and making decisions about the level of coverage to maintain.
2. Beneficiary Designations: Ensuring that beneficiary designations are up to date is an important step in the retirement process. This ensures that the benefits are paid out according to the retiree’s wishes.

Special Considerations

1. Health Changes: Unlike private life insurance policies, FEGLI does not require medical underwriting for continuing coverage into retirement. This makes it a valuable option for retirees who may have developed health issues over their careers.
2. Financial Planning: Considering the costs and benefits of maintaining FEGLI coverage in the context of overall retirement financial planning is essential. Retirees should evaluate their life insurance needs in conjunction with other sources of income and financial assets.

Conclusion

Understanding the changes and constants in FEGLI coverage during retirement is crucial for federal employees transitioning into this new phase of life. By knowing how coverage continues, how premiums are adjusted, and how benefit amounts are determined, retirees can make informed decisions that best suit their financial needs and provide adequate protection for their beneficiaries. Regularly reviewing and updating life insurance coverage and beneficiary designations ensures that retirees maintain the appropriate level of coverage and optimize their financial planning strategies.

Contact Information:
Email: [email protected]
Phone: 9143022300

Bio:
My name is Kevin Wirth and I have worked in the financial services industry for many years and I specialize in life insurance and retirement planning for individuals and small business owners, with a specialty in working with Federal Employees. I am also AHIP certified to work with individuals on their Medicare planning. You can contact me by e-mail or phone. I look forward to the opportunity of working with you on these most relevant areas of financial planning.

[email protected]
914-302-2300

Disclosure:
These articles are intended for educational purposes only. Please contact your advisors for legal, accounting or investment advice.