Life Insurance Lessons

Do you remember the last time there was an open season for the Federal Employees Group Life Insurance program? It was September 2004. And do you remember that any changes made at that time didn't take effect until a year later -- and why that is significant? It means that as of this fall, five years have elapsed since the changes took effect, so those who chose to increase their coverage back in 2004 now can carry that coverage into retirement.

Questions about FEGLI coverage came up when I wrote about the program in two columns earlier this year: The List (June 4) and Your Money and Your Life (July 16). This week, I thought I'd address some of them.

First, the basics: FEGLI is a group term life insurance program the Office of Personnel Management administers. Here's the official website for it. FEGLI does not build up cash value and you can't take a loan out against it. OPM contracts with MetLife to provide the insurance.

Now, on to the questions.

When can I increase my life insurance coverage?

FEGLI is available to new hires and also at times when employees experience a life event, such as marriage, death, divorce, or birth of a child. There are limited FEGLI open enrollment periods, because it covers all federal employees, regardless of their health. There is no medical underwriting to be eligible to enroll. You are only asked, "how much coverage do you want?" not "how's your health?" I can recall during my time in government as a benefits specialist that there were open enrollment periods when employees who had been diagnosed with terminal illnesses were able to enroll in FEGLI immediately.

If you want to enroll in FEGLI, or increase coverage outside open season, you can do so by applying for coverage and supplying medical evidence of insurability. As long as at least a year has passed since the effective date of your last waiver of life insurance coverage, you can fill out a Request for Life Insurance form (SF 2822). You and your agency must complete separate parts of the form. Then you must take it to a medical professional. He or she will examine you, fill out the rest the form and send it to the Office of Federal Employees Group Life Insurance at MetLife.

If OFEGLI approves your request, then you will automatically get basic insurance. You also will have 31 days from the approval date to select Option A (which provides $10,000 of coverage) and/or Option B (which comes in one, two, three, four or five multiples of your annual basic pay rate), or increase your Option B multiples. To do so, complete the Life Insurance Election form (SF 2817) and submit it to your human resources office. You can't choose Option C (which insures your spouse and eligible dependent children), or increase your Option C multiples by providing medical information. You can get Option C only based on a life event.

Can anyone explain why there has been no open season for FEGLI since 2004? Was it a conscious decision made at that time to limit further opportunity for federal employees to obtain this life insurance?

OPM generally announces open enrollment periods for FEGLI when there is a change in benefits mandated by Congress or a change in premiums -- although neither of those had occurred before the 2004 open enrollment. That one was to celebrate FEGLI's 50th anniversary. Both the 2004 open season and the one that preceded it in 1999 had the stipulation that while you could sign up for coverage, you wouldn't begin paying additional premiums and receiving additional coverage for a year. That prevented those who were terminally ill with a life expectancy of less than a year from signing up and receiving the benefits of coverage.

I had a medical issue (irregular heart beat) when I was 52. When I turned 55, my FEGLI premiums doubled. So I started looking at alternative policies. I was able to find a 20-year, $1 million term life insurance policy that is cheaper than my current FEGLI rates, and I will realize significant monthly savings after I turn 60, when the FEGLI Option B rates will more than double again. I highly recommend everyone check out term life insurance policies with 20-, 30- or even 40-year terms. You might pay a little more early in your career depending upon your age, but you will realize significant savings over your working life. If you are determined to be uninsurable by private insurers, FEGLI is certainly a viable alternative, since you can't be turned down. Just make sure that choosing FEGLI is an educated decision.

I agree that federal employees should shop around for life insurance as they would for any other product or investment. The advantages to FEGLI include:

• It covers all federal employees (with a few exceptions).
• Payment is provided regardless of the cause of death (other than someone whose death was wrongfully caused by the beneficiary).
• The amount of coverage under Basic and Option B "floats" with your salary, providing more coverage every time your basic pay rate increases.
• FEGLI allows coverage to continue into retirement as long as you meet the five-year coverage test and retire on an immediate retirement benefit.
• It includes a "living benefit" for those diagnosed with a terminal illness.
• Premiums are conveniently deducted from your salary or retirement benefits.

The main downside to FEGLI is the cost. It is not always the cheapest life insurance around, unless you are uninsurable. Here are some of the companies and organizations that compete with FEGLI that you also can consider for your life insurance needs:

• WAEPA
• SAMBA
• USAA
• NARFE

Can you add Option C family coverage if you have a qualified life event after retirement?

Unfortunately, retirees are not permitted to increase their life insurance.

I am over age 65 and retired. Why do I continue to have FEGLI premiums deducted from my annuity?

At the time of retirement, you were given the opportunity to continue all your FEGLI coverage that you were eligible to carry into retirement. There were several choices, allowing various amounts of insurance. Some of those choices require that you continue to pay existing premiums, or pay an additional premium. If you want to stop doing so, you can contact OPM and cancel your election and get a full or partial reduction of coverage. There's more information in this OPM handbook. 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.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Monday mornings at 10 a.m. ET on federalnewsradio.com or on WFED AM 1500 in the Washington metro area.