The Good. The Bad. and. The FEGLI

Transcription

1 The Good The Bad and The FEGLI 1

2 Disclosures The information discussed in this guide, while researched and thought to be accurate, is subject to the various prospectus wording and contract language. You should consult with OPM, Human Resources and/or a qualified financial advisor as well as do your own due diligence before making any decisions. All decisions should be based on your specific situation. $ Securities offered through Securities Ĵ Service ķ ĸ Network, Inc., Member FINRA/ SIPC. $ Fee-based advisory services offered through SSN Advisory, Inc., a registered investment advisor.

3 Did You Know The cost of a Federal Employee s FEGLI (Option B) will increase 1000% between ages 39 and 60! $ Should you keep it as a part of your retirement plan? 3

4 Option B Option B lets you add multiples of your income from 1 to 5 times the annual rate of your basic pay. It is generally the most expensive form of coverage because the amount of life insurance is typically much larger than it is with your other options. The cost of Option B coverage is based on age, and increases every 5 years (See the next chart). As with most forms of term insurance, it generally starts out with a fairly low cost that grows significantly over time. 4

5 Many Federal Employees began this coverage when they first started service, which may have been in their 20 s or 30 s. When enrolling in Option B coverage as a new employee, there is no underwriting qualification, which means you can t be declined for health reasons. Because the coverage is cheap when you are young and you can t be declined, many employees decide to take large multiples of insurance. Why not? However, as times passes, the employee shifts to the next fiveyear Age Band, such as 50 or 55 and notices that their pay has decreased. An increase in life insurance Option B premiums might account for this. 5

6 Option B Insurance Costs (2012 Rates) Option B Premium per $1,000 of Insurance Age Band Biweekly Monthly Under 35 $0.02 $ $0.03 $ $0.05 $ $0.08 $ $0.13 $ $0.23 $ $0.52 $ $0.62 $ $1.14 $ $1.80 $ and over $2.40 $

7 LIFE INSURANCE OPTIONS AT RETIREMENT When an employee retires, they may elect how much of the Basic and Optional insurance coverage they would like to pay for and carry into retirement. The coverage may continue into retirement if: Retirement annuity is immediate (began in the first month after you separate service). You were covered for the ice years immediately before your annuity began. You do not elect to convert your life insurance to an individual policy. 7

8 Under FERS, there is an exception to the first example above. If you separate service after reaching MRA (minimum retirement age) and have at least 10 years of service, you are eligible for an immediate annuity. Therefore, under the FERS retirement eligibility rules you may elect to postpone your annuity. If you do choose to postpone your annuity, your life insurance will stop until the date your annuity begins. The amount of life insurance coverage will remain the same as it was when you separated service, or following your 65th birthday, whichever is later. 8

9 WHAT DO MOST PEOPLE DO WITH FEGLI WHEN THEY RETIRE????? One of the decisions that most Federal Employees need to make when entering retirement is how much of the FEGLI coverage they are going to keep. Most Federal Employees choose to keep their basic coverage with a reduction, and eliminate the optional coverage because of its escalating costs. 9

10 BASIC COVERAGE ELECTIONS IN RETIREMENT 75% Reduction: If you elect to continue your FEGLI Basic coverage into retirement, and you take the 75% reduction, your Basic coverage will begin after you turn 65 or retire (whichever is later), until it reaches 25% of the original amount. The rate of decrease is 2% per month and will take about 3 years to level out at 25%. The coverage amount will not decline any further below 25%. $ $ $ It has been my experience that this is the most popular option for retiring employees because there is no cost to the employee for the Basic coverage if this election is chosen. 10

11 BASIC COVERAGE ELECTIONS IN RETIREMENT 50% Reduction: If you elect the 50% reduction in your Basic coverage it will begin to reduce by 1% of the original amount each month after you turn 65 or retire, whichever is later. This coverage will continue until the Basic amount reaches 50%, which normally takes a little more than 4 years This election is expensive and generally not chosen, unless the coverage is definitely necessary. 11

12 OPTION B COVERAGE ELECTIONS AT RETIREMENT FULL REDUCTION NO REDUCTION Once you retire and turn 65, your preretirement coverage amount is reduced by 2% each month until it reaches zero, which will take approximately four years. The coverage remains the same and the cost is also unchanged, as it compares to an active employee. The cost for Option B additional insurance will increase every 5 years until you reach 80, causing substantial cost increases at ages 65, 70, 75, and 80. Therefore, most people opt out of this election. If they do elect to keep the coverage with no reduction they are often surprised at the cost increases each five years. 12

13 OPTIONS TO INCREASE FEGLI COVERAGE Current Federal Employees are eligible to increase their FEGLI coverage with medical proof of insurability. This means the insurance company reserves the right to decline coverage if they feel your health does not meet their guidelines. Options to increase FEGLI coverage do not apply to retirees (unless they return to active status). 13

14 HOW TO FILE FOR FEDERAL EMPLOYEE GROUP LIFE INSURANCE BENEFITS To file a heath claim for benefits under FEGLI you will need to complete one of the following forms: FE-6 Claim for Death Benefits for Basic and Option A or B FE-6 DEP Statement of Claim, Option C - Family Life Insurance If you need help with this and you are an employee, you should contact your human resources office. If you are retired, contact the Office of Federal Group Life Insurance at Generally, a death claim requires that a certified copy of the death certificate and the completed form be sent to the insured s agency if he or she died while an employee. If the insured was retired, the form and death certificate should be sent to the Office of Personnel Management, Retirement Operations Center. 14

15 BENEFICIARY CHANGES TO FEGLI LIFE INSURANCE While you cannot make changes to your life insurance online, you can download the forms you will need from the OPM website. Go to Click on Forms near the top of the page. Click on Standard Forms. Scroll down and click on SF 2823, Designation of Beneficiary, Federal Employees Group Life Insurance Program. 15

16 FEGLI TIPS TIP ONE: Take the Government up on Basic coverage. The actual cost of the Basic coverage is shared by the Government. The employee pays approximately 2/3 and the Government pays the rest. An employee s age doesn t affect the cost of Basic as it does with the other Options. Basic cost will only increase if you get a raise or promotion, which causes you to have a higher salary and more coverage. TIP TWO: Additional coverage options A, B, and C may be less expensive with private insurance companies outside the government, but that is greatly dependent on you health situation. If you or a family member are uninsurable or have a significant health issue, the FEGLI options may be the best TIP THREE: The cost of option B is typically competitive up until age 39. As you can see by the chart, the cost increases every 5 years between ages 40 and 80. By studying the chart you will note that the cost of coverage increases tenfold (1,000%) from ages 39 to 60 and continues to increase into retirement. 16

17 Many people who have a significant amount of life insurance find that it eventually becomes too expensive to keep. If you drop the coverage, all premiums you ever paid into the policy will be lost, and there are no benefits because this coverage doesn t build cash value. If you qualify for private insurance it can be used for many things. You can use it for family protection (income insurance) in case you die. It can also be used as a retirement income supplement or to replace all or part of the survivor s benefit of the Retirement Annuity. We will talk more about this in the Pension Income Maximization section. 17

18 HOW MUCH LIFE INSURANCE DO I NEED TO CARRY INTO RETIREMENT? I have been working in the life insurance industry since 1986 helping Federal Employees, their families, and corporate officers answer this question. In over 25 years, one thing I have determined is that there is no single answer to that question. 18

19 Below are a few factors to consider when determining the amount of life insurance you may need. 1 Do you want additional income to family survivors? 5 Will your spouse need supplemental retirement income? 2 Do you want funds to pay off debts? How much debt? 6 What lump sum is needed at death for a survivor emergency fund? 3 Do you need funds to pay death taxes, if any? 7 Are there ongoing needs for your spouse based on his or her ability to work? 4 Do you want funds to pay educational expenses for children or grandchildren? 8 Are there any one-time expenses you wish to fund? Heath care expenses, family wedding(s), car, home improvement, etc? 19

20 How much do you have in liquid investments? Perhaps your need for life insurance in retirement is zero. These are just some of the questions that must be asked when considering the question: How much life insurance do I need in retirement? For additional information or assistance in your calculation, please feel free to us at info@medalliongroup.com or call

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