Life Insurance Options, Part Two

By Tammy Flanagan

September 22, 2006

In last week's column, we began our discussion of life insurance, covering the basics of the Federal Employees Group Life Insurance program. It was an appropriate time to take up this issue, I've since learned, because September is Life Insurance Awareness Month. (Don't believe me? Click here.)

Federal employees are automatically enrolled in basic FEGLI coverage at the beginning of their service. Most maintain this basic coverage throughout their careers and into retirement. Some also enroll in additional optional coverage as their needs for life insurance increase. Because FEGLI has few open enrollment periods, the program generally gets very little attention. But when employees begin planning for retirement, FEGLI issues and other life insurance options usually rise to the surface.

Last week, you may remember that I laid out the top 10 FEGLI-related questions:

I dealt with the first four in last week's column. Now let's look at the remaining questions.

How much life insurance should I keep in retirement?

According to the Life and Health Insurance Foundation for Education, the answer isn't really how much insurance you need; it'show much money your family will need after you're gone. That includes funds for funeral expenses and debts, and sufficient income to maintain your family's standard of living over the long haul.

Make sure to take other "death" benefits besides insurance into consideration when you evaluate the amount of money your loved ones will need after you die. There are survivors' benefits for dependent children and spouses under both the Civil Service Retirement System and the Federal Employees Retirement System. Someone also will receive the proceeds from your Thrift Savings Plan account. As the value of your federal benefits increase throughout your career, the need for life insurance -- or at least large amounts of life insurance -- may decrease. Also, remember that your answer to this question will change over time. Many employees increase their life insurance at the time of major events such as marriage, divorce or the birth of a child. But when these financial obligations decline over time, they often neglect to re-evaluate their needs.

Who will benefit from this coverage?

Don't forget to update your FEGLI beneficiary designation when such events occur, using form SF 2823.

When you die, the Office of Federal Employees' Group Life Insurance will pay life insurance benefits in a particular order set by law. If you did not assign ownership of your benefits and there is no valid court order on file with your agency or the Office of Personnel Management, then OFEGLI will decide who should get the benefits in the following order of preference:

If the person who is entitled to payment under the order of precedence doesn't file a claim within one year after your death, the Office of Federal Employees' Group Life Insurance can pay the person next in the order of precedence, just as if the person who would otherwise get the payment had died before you did. This payment bars any other person from collecting.

What is the purpose of this coverage?

Let's look at this one from various angles, examining the questions you should be asking yourself:

When will it no longer be needed?

Many federal retirees let their life insurance benefit gradually decline in value. Maintaining the full level of coverage for the rest of your life can get very expensive. After evaluating your needs, you may realize that the price you are paying to remain covered is no longer worth the premiums you are paying. But remember, once you cancel insurance coverage, you may never be able to re-enroll.

Is FEGLI my only choice?

You may have many choices for obtaining life insurance, depending on your "insurability." FEGLI covers everyone in the federal "family" regardless of their health or other factors. This is not true of other insurance plans. When you apply for life insurance, the company will examine a number of factors based on its underwriting standards and guidelines. These include your:

If you can pass the underwriting requirements, you may find more competitive premiums outside of FEGLI. But when purchasing life insurance to replace FEGLI, be sure you have been approved for the private policy before you cancel your FEGLI enrollment. Remember that you can't enroll in FEGLI as a retiree. You must have a level of coverage in effect for five years before you retire to continue that coverage into retirement.

Do some research on insurance companies you're considering to make sure they're financially sound. Here are some resources that can help:

What other benefits are payable when I die?

Earlier this year, I wrote columns on beneficiary designations and spousal benefits that examine this question in detail.

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.

By Tammy Flanagan

September 22, 2006