A life insurance primer
It was standing room only at a March 19 hearing of the House Government Reform Subcommittee on the Civil Service on the subject of life insurance. Former subcommittee chairman Rep. John Mica, R-Fla., strolled in midway through the proceedings. He greeted new chairman Rep. Joe Scarborough, and then launched into a spirited attack on federal employees' life insurance benefits.
"I happen to be a federal employee, believe it or not. And I don't like the terms of my life insurance," Mica told Janice Lachance, director of the Office of Personnel Management. OPM manages the Federal Employees Group Life Insurance (FEGLI) program.
"If this was a private organization and any of you all worked for me, I'd fire every one of you," Mica said to Lachance. "I'm a federal employee. I need life insurance. I'm getting older. You all are causing me great stress and pain. . . . I don't know how anyone can look at a group of 1.8 million federal employees, 2.2 million federal retirees, a pool of that number and not be able to provide some access to very competitive rates in life insurance."
At least 25,500 other federal employees agree with Mica that FEGLI doesn't cut it. That's how many employees have signed up for life insurance from WAEPA, a non-profit association that competes with FEGLI for civil servants' life insurance business. In addition to WAEPA, several other private insurance carriers market to federal employees, saying their life insurance programs are better than FEGLI.
During the coming open enrollment period for FEGLI, federal employees may want to research outside companies' life insurance options, in addition to the government-sponsored program. The life insurance open season begins this Saturday, Apr. 24, and runs through June 30.
The open season was prompted by the Federal Employees Life Insurance Improvement Act, which Congress passed last year. The act included several changes and added benefits to the FEGLI program. Congress ordered OPM to hold an open season so that employees can change their life insurance coverage if the new benefits appeal to them.
OPM is shipping life insurance enrollment materials to agencies this week. Agencies are supposed to pass on the brochures and forms to their employees.
There are four insurance options under FEGLI: Basic coverage, Option A, Option B and Option C. Below are explanations of each of the options, including changes called for in last year's act.
Basic coverage. Basic life insurance coverage is automatically provided to federal employees unless they waive the coverage when they're hired. Coverage is equal to the employee's annual basic pay, rounded to the next $1,000, plus $2,000. (If you make $63,412 a year, you get basic coverage of $66,000.) The government pays one-third of basic premiums. The other two-thirds is deducted from employees' pay checks. In 1998, coverage was capped at $139,000. Thanks to last year's law, there is no longer any cap on basic coverage.
Option A. To obtain an additional $10,000 in life insurance on top of basic coverage, federal employees can choose Option A. Employees must pay an additional premium under Option A. No changes were made to Option A in last year's law.
Option B. Under Option B, federal employees can buy additional life insurance in amounts equal to one, two, three, four or five times their annual basic pay. For example, an employee who makes $40,000 a year could buy an additional $200,000 in coverage, which is five times his or her salary. Again, employees must pay an additional premium for the additional coverage. Last year's law eliminated the cap on Option B coverage. The law also allows federal retirees to continue full Option B coverage after age 65, but they have to continue paying premiums. If they don't pay the premiums, the coverage reduces by two percent per month. For people who leave the government, the new law makes Option B coverage portable. Former employees must continue to pay the premiums, however.
Option C. Option C provides life insurance for federal employees' families. The coverage includes $5,000 for the spouse and $2,500 for each child. Again, employees pay extra for Option C coverage. The new law allows employees to buy even more coverage for their families-up to $25,000 for spouses and up to $12,500 for each child. The law also allows federal retirees to continue full Option C coverage after age 65, but they have to continue paying premiums. If they don't pay the premiums, the coverage reduces by two percent per month. The law also allows employees to buy life insurance for foster children.
As with any insurance, it's good to shop around for life insurance. Federal employees can research their options online, including at some of the following Web sites:
- OPM's Federal Employees Group Life Insurance Program (includes life insurance calculator): www.opm.gov/insure/life/
- WAEPA: www.waepa.org
- MFL Insurance: www.termhouse.com/fegli.htm
- Mid-America Financial Services: www.mafs.com/fegli.htm
- Armed Forces Benefits Association: alexweb01.afba.com/
- Kippenberger and Associates: www.fegli.com