Life Insurance for Retirees
The rules and options for continuing coverage into retirement.
Last week, we looked at insurance coverage for current government employees. Now let's explore options for retirees.
Under the Federal Employees Group Life Insurance program, the amount of Basic coverage you carry into retirement is based on your salary on the day you retire. You are eligible to continue Basic insurance if you meet all the following requirements:
- You are entitled to an immediate annuity, meaning you’re eligible to begin receiving retirement benefits within 31 days of your separation. Those under the Federal Employees Retirement System can re-enroll in FEGLI when they file for their retirement benefit if they separate at their minimum retirement age with at least 10 years of creditable service, and choose to postpone their application to avoid the age penalty.
- You have been insured for the five years immediately preceding your retirement, or since your first opportunity to enroll.
- You have not converted your life insurance coverage to an individual policy—or, if you have already converted the coverage, you cancel the converted policy.
When your insurance terminates, your employing office must give you a Notice of Conversion Privilege (SF 2819). No medical examination is required for conversion, although you may be asked a few questions about your health to see if you qualify for a lower premium. The individual policy will be issued by an insurance company you choose from a list of companies that have been approved by the Office of Personnel Management. Upon your death, your family members covered under FEGLI Option C can convert their coverage to individual policies.
When you retire, you will make your choices on form SF 2818, Continuation of Life Insurance Coverage. OPM deducts FEGLI premiums from your retirement benefit each month.
Here are your FEGLI options in retirement:
- 75% reduction: You maintain the Basic coverage in effect on your last day of employment, but after you turn 65 (or when you retire if you are already over 65), the coverage reduces by 2% per month until it reaches 25% of its original value. You stop paying premiums ($.3467 per $1,000 of coverage per month) when the reduction begins.
- 50% reduction: You maintain the Basic coverage in effect on your last day of employment, but after 65, (or when you retire if you are already over 65), coverage reduces by 1% per month until it reaches 50% of the original value. You pay Basic premiums ($.3467) and additional premiums ($0.75 per $1,000 of coverage) until the reduction begins. After that, you must continue paying the additional premiums. You can cancel this option at any time and drop back to the 75% option.
- No reduction: You maintain the Basic coverage that was in effect on your last day of employment. You will pay Basic premiums ($.3467) and additional premiums ($2.25 per $1,000 of coverage per month) for this benefit if you were under 65 at retirement. After 65, when retired, you will pay $2.25 as long as you want to maintain no reduction of your Basic FEGLI. You can cancel this option at any time and drop back to the 75% option.
Option A (Standard):
- If you continue Option A coverage, the $10,000 death benefit will decline by 2% per month until it reaches $2,500 beginning at retirement or 65, if later. No premiums are required after you turn 65, once retired.
Option B (Additional) and Option C (Family):
- Full reduction: At 65 or retirement (if later), Option B or Option C coverage will reduce by 2% of the pre-retirement amount per month for 50 months, at which time coverage will end.
- No reduction: Retiring employees may choose to continue Option B and Option C coverage on an unreduced basis and continue to pay premiums after 65. Annuitants who choose unreduced coverage can later cancel the coverage and have the full reduction. But they can’t re-enroll.
You can choose full reduction for some multiples of Option B and Option C while you opting for no reduction of the rest of your Option B and Option C coverage.
Here’s an example. Assume an employee has the following coverage: Basic (75% reduction election) plus Option A, five multiples of Option B (full reduction for four multiples and no reduction for one multiple) and five multiples of Option C (no reduction for all multiples) retiring at age 62 with a salary of $85,300:
Basic (75% reduction): $0.3467 x 88 = $30.50 per month until 65, then no further premium. $88,000 coverage reduces by $1,760 per month beginning at 65 until coverage reduces to $22,000. It remains there at no further premium for life.
Option A: $10,000 coverage with a premium of $13 per month from retirement to 65, then no further premium. Coverage reduces by $200 a month at 65 until it hits $2,500. It remains there at no further premium for life.
Option B: $86,000 x 5 = $430,000 coverage at retirement. Four multiples elected at full reduction ($344,000 begins reducing at 65 by 2% per month until it reaches $0) and one multiple elected at no reduction ($86,000 remains as long as no reduction of one multiple stays in effect). Premium of $0.867 per $1,000 of coverage per month (430 x $0.867 = $372.81) from retirement to age 65; premium increases to $1.040 (86 x $1.040 = $89.44) until age 70; premium increases to $1.863 (86 x $1.863 = $160.21) until age 75; premium increases to $3.90 (86 x $3.90 = $335.40) until age 80; premium increases to $6.24 (86 x $6.24 = $536.64) at 80 and over.
Option C: $5,000 x 5 = $25,000 coverage for spouse will remain at no reduction for $26.35 per month until age 65, then $30.65 until 70, $41.50 until 75, $62.40 until 80, and $84.50 as long as no reduction of all five multiples remains.
You can cancel any of your FEGLI coverage at any time, before or after you retire. But if you do so in retirement, it will be a one-way ticket out. You won’t be eligible to reinstate coverage later. This includes Option C family coverage, even if you remarry after retirement.