Life insurance and retirement

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Are you thinking about making changes to your life insurance coverage during the current Federal Employees Group Life Insurance (FEGLI) program open season? If so, your decisions will be affected by when you plan to retire.

The life insurance open season began April 24 and ends June 30. Because Congress made changes to the program in the Federal Employees Life Insurance Improvement Act of 1998, the Office of Personnel Management, which runs FEGLI, has sent out life insurance booklets for agencies to pass out to their employees. If you didn't get one, you can download the information from OPM's Web site: www.opm.gov/insure/life.

Already-retired feds don't have to take much interest in the open season, except to note that OPM will likely raise certain premiums for people age 65 and over in the next few years. OPM says the increases won't take effect until Apr. 24, 2001 at the earliest, but rates could double for people aged 70 and over. In addition, if retirees have Option B coverage, they can adjust the amount of coverage they will have as they get older.

But current federal employees who are planning to retire before April 2005 should keep in mind the "five-year rule" when they consider their life insurance options. That rule states that you must be continuously enrolled in FEGLI options for five years to continue those options into retirement. (There are four options under FEGLI: Basic, Option A, Option B, and Option C. For more information on the options, see the Apr. 22 edition of Pay and Benefits Watch).

So if you get coverage under, say, Option B for the first time during this open season, you can only take it into retirement if you retire after April 2005.

When you retire, you can keep some or all of your FEGLI coverage (if you meet the five-year rule), you can convert some or all of your coverage into an individual policy with MetLife, or you can cancel the coverage altogether.

Some federal employees choose simply to forgo FEGLI coverage and sign up for life insurance with a private insurer. For example, some employees get permanent life insurance from private insurers, which accumulates cash value and lasts as long as you pay premiums. Permanent insurance is more expensive than term insurance, which covers a set period of time and does not accumulate cash value. FEGLI is term insurance.

You can cancel your FEGLI coverage at any time. But FEGLI open seasons are few and far between, so this is a rare opportunity for federal employees to consider additional coverage under FEGLI.

One federal retiree wrote to Pay and Benefits Watch: "There is so little [FEGLI] information at retirement, and what is there is so little understood that the retiree doesn't get much to work with. It's like, retiree beware!"

Even if you're not retiring for several years, you can look ahead to how retirement will affect your life insurance on the OPM Web site: www.opm.gov/insure/life/handbook/annuit.htm.

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