Weighing Your Life Insurance Options

In last week’s column, we took a look at the Federal Employees Group Life Insurance program. FEGLI is a form of group term life insurance. It has no cash value, and once you’re insured, you can choose to keep it throughout your life. For most of people, term life insurance is the best way to cover their insurance needs.

Permanent or whole life insurance is different. It generally has a fixed premium, it maintains its value throughout your life and there is a cash value component you can access. In a Kiplinger’s article about how to determine your life insurance needs, Kimberly Lankford writes that the best reason to consider whole life insurance is if you’ll need coverage beyond 20 or 30 years -- or after age 65, when term insurance gets expensive. You might want permanent insurance, for example, if you need to protect kids with special needs who will always rely on you (or your estate) for support.

There are also enrollment issues to consider when weighing your insurance options. FEGLI rarely holds open enrollment periods, when you can increase your coverage without medical underwriting. (There was one last year.) You can sign up when you are first hired, and make changes at the time of qualifying life events, such as the birth or adoption of a child. You also can increase your life insurance by providing evidence of your insurability in the form of passing a physical exam showing you’re in relatively good health.

If you are insurable, and you think you need more than just basic FEGLI coverage, you may want to consider alternatives to FEGLI.

FEGLI has its advantages, such as coverage that increases automatically as your salary increases. If you are enrolled in FEGLI for at least the five years immediately prior to retirement,  you can continue your enrollment into retirement.

Still, if you are in good health and otherwise insurable, there are reasons to shop around, including:

• Cost: You may be able to qualify for coverage at lower premiums than FEGLI charges.
• Additional Coverage: FEGLI is limited to basic, standard and optional coverage, which provides a maximum benefit of a little more than six times your basic salary rate. If you need additional life insurance coverage, you will need to supplement FEGLI.
• Level Premiums: You may not need life insurance for the rest of your life, in which case a term life insurance policy with level premiums for a period of 10, 20 or even 30 years could be a better option for you.

You can seek out a reputable life insurance agent to compare prices and evaluate the type and amount of insurance for your needs. You can also shop for life insurance from one of the many online insurance shopping services. You can purchase coverage directly from the insurance company online or from a salesperson or an insurance broker. The legal information site NOLO has tips for how to purchase life insurance.

The federal agency you work for also may have contracts with other life insurance providers. Check with your human resources office to see if there are any such plans available to you. There are two life insurance benefits that are routinely bought by federal employees to replace or supplement FEGLI: SAMBA and WAEPA.

SAMBA provides life insurance in amounts up to $600,000, includes a living benefit in the event of a terminal illness diagnosis and an accidental death benefit for employees and retirees who are under 65. WAEPA provides a maximum coverage amount of $1.5 million of term life insurance and includes a living benefit in the event you are diagnosed with a permanent chronic illness. Both SAMBA and WAEPA provide coverage to your spouse and dependent children.

Last week, we looked at the hypothetical example of Kim, who has a salary of $77,500. Her FEGLI basic life insurance would cost $12 biweekly and would pay her beneficiary a payment of $80,000 upon her death. If she chooses five multiples of Option B of FEGLI, she could be insured for $390,000 -- five times her salary rounded to the next $1,000. Plus, she could carry Option A (standard) coverage -- which provides an additional $10,000 -- for a total additional benefit of $400,000.

How do WAEPA and SAMBA compare? In general, FEGLI can provide the most coverage if you need substantial insurance after age 70, but WAEPA provides less expensive premiums for enrollees age 60 and below. SAMBA is comparable in price to FEGLI at age 50 and under and less expensive than FEGLI between ages 60 and 70.

Before you make your decision about your coverage needs, it’s a good idea to do more research to arrive at a detailed side-by side comparison of your individual options.

Photo: Flickr user Carsten Tolkmit