Life insurance is one of the most important investments that you’ll ever make for your loved ones. It’s one of the few ways that you can guarantee that your family will have the money that they need, regardless of what happens to you.
When you’re shopping for life insurance coverage, there are dozens of different factors that you will need to look at to ensure that you’re getting the best plan for you. There are several kinds of plans, and hundreds of companies that you will need to compare before you decide which one is best for you. We know that it can be a long and difficult process to find the best plan, but that’s why we are her to help. It’s our mission to ensure that you’re getting the best life insurance coverage for your family.
The Federal Government established the Federal Employees’ Group Life Insurance (FEGLI) program on August 29, 1954. It is the largest group life insurance program in the world, providing coverage to more than 4 million Federal employees.
As important as life insurance is and can be to you and your family, it’s important to understand some of the nuisances of the FEGLI program as well as how you could greatly benefit from enrolling in a non-FEGLI plan that you can call your own.
This article is going to look at FEGLI coverage and the reasons that you should consider getting a different life insurance plan. Hopefully, this article will answer any questions that you have about life insurance coverage. If not, please contact one of our agents today. We would be happy to answer those questions about your FEGLI insurance protection.
- FEGLI Premiums Can Increase 2,000% As You Get Older
Most Federal employees aren’t aware of how cost prohibitive their FEGLI coverage will become. FEGLI premiums can increase up to 2,000% (as much as 20 times) through the life of your employment with the Federal government. In nearly every case, having life insurance premiums that increase as you age is not recommended. One of the very first attributes to look for in life insurance when researching a policy is called “level premiums”. This means the premiums you pay remain level for the life of the policy and will not increase. FEGLI coverage has what we call “increasing premiums”. Specifically with FEGLI, your life insurance premiums will go up every five years in what is called “age bands”.Now, you are probably wondering why FEGLI coverage can be so expensive; the reason is that FEGLI coverage is group life insurance. All Federal employees enrolled in the FEGLI coverage are assumed to have the same health status and the same height and weight. Everyone pays the same rate regardless of their personal health, build or habits.In the world of individually owned life insurance policies, a man who is considered obese and a pack a day smoker is going to pay MUCH higher rates for life insurance than a man of the same age who is in great shape, doesn’t smoke and has a healthy body mass index. On the contrary, when it comes to FEGLI, those two individuals of the same age and same coverage amounts, but with very different health and build, will pay the exact same for their FEGLI life insurance policies. Purchasing an individually owned policy where you prove your insurability (by taking a brief health exam free of charge to you) allows you to lock in premium rates for the life of your policy. That is the key!Below are two separate examples of the potential savings a 34 year old male and 50 year old male could experience if they decided to purchase a 20 Year Level Term Life Insurance policy, compared to sticking with their FEGLI plans.
- Coverage Can Decrease Up To 75% At Retirement
FEGLI coverage can decrease 75% at retirement, if you aren’t careful and maintain an awareness of how your coverage is operating. This can be a problem because if you want to maintain coverage to provide financial protection your family, it can be easily lost.If you decide you don’t want the reduction of your Option B coverage upon retirement, it becomes horribly and entirely cost-prohibitive compared to an individually owned policy you could purchase on your own that will have level premiums.
- It’s Not Permanent Life Insurance
Your FEGLI coverage is not designed to be permanent life insurance. Permanent life insurance provides you coverage for your entire life. Most important regarding permanent life insurance coverage, the premiums do not increase, meaning they remain level for the life of the policy.Your FEGLI option B coverage is more similar to what’s called an “Annually Renewable Term” life insurance policy. Except in FEGLI’s case your premiums are renewed and increase every 5 years rather than on an annual basis. Now, with FEGLI you do have an option to keep your option B coverage (multiple of your salary), however it becomes INSANELY expensive. In the range of hundreds of dollars per month expensive. You can do MUCH BETTER owning an individual policy.
- FEGLI Plans Build No Cash Value
FEGLI does not generate any cash value, much like how term life Insurance operates. The upside to having the option to own a life insurance policy that accumulates cash value is that the cash in the plan is available for you to borrow against. Even better yet, when you borrow against your plans cash value you are doing so at a low interest rate as well as without a loan approval process. Have cash value life insurance plans are a great way to provide financial protection for your family while generating cash in the plan to use at your disposal.If you like the idea of having life insurance that generates cash value, your absolute best option is to purchase an individually owned policy from a trusted insurance broker.
- Your Spouse’s Coverage Can Decrease To Zero
Once you retire, you have the option to keep your entire FEGLI coverage, or you can reduce it by 75% or 25%, or cancel it entirely. On the other hand, your option C coverage which provides life insurance on your family members (particularly your spouse) is completely terminated when you retire or leave your position with the Federal government, leaving you with no spousal coverage which can be very important to a family.Personally, if my spouse were to pass-away unexpectedly, my life and family would be in complete shambles. Not only would I become the sole income earner for my family, but I would have a lot of slack to pick-up where my spouse was taking care of our family. I may need to hire a house cleaner and a nanny, as well as possibly have to hire an assistant at work to help alleviate more of my time so I could pick up the slack with the kids.Whether your spouse works or is a stay-at-home parent, having life insurance coverage on both parents, can be critical if an unexpected death were to occur to them.
- In Most Cases You Can’t Increase Your FEGLI Coverage
You’re only able to increase your FEGLI coverage when a qualifying life event occurs, such as becoming married and having a child. Other than that, you may increase coverage only after having provided proof of insurability by submitting yourself to a mini physical exam.If you decide you want to increase your FEGLI coverage and are willing to go through an exam to prove your insurability, please, for your sake, consider applying for an individually owned life insurance policy. You’ll be shocked at how much more affordable an individually owned policy is, as well as how much money you will save by owning your own policy instead of taking part in the FEGLI group life insurance plan.
- Taking FEGLI To Your New Job Will Be Expensive
If you decide to leave the Federal government for a new job or career, you will have the option to convert your FEGLI coverage to an individually owned policy. The problem with that is you will not be subject to taking a health exam to prove your insurability. That means you will be keeping your FEGLI coverage at the group rate, which is ridiculous.On top of that, when you convert your FEGLI to an individual policy, you will not have the option to convert it to a Term life insurance policy, which is your least expensive option for life insurance. You are required to convert it to a permanent cash value policy, which will by far and away a much more expensive option.Don’t get me wrong, I have no problem with permanent cash value policies; my problem is with the lack of options provided to you if you decide to convert your FEGLI policy to an individual policy. Rather than convert your current FEGLI plan, my recommendation would be to apply for a new individually owned policy. In doing so you will have to complete a very brief health examination that is free of charge to you, in order to prove to the insurance company that you are healthy. This can result in MUCH more affordable life insurance rates for you, and your spouse.
- Being Furloughed Can Impact Your FEGLI Coverage
According to OPS.gov, if you are furloughed for up to 12 months while in a leave without pay (LWOP) status, your FEGLI coverage will continue without cost to you or the agency. If your furlough continues beyond 12 months of LWOP your FEGLI coverage will terminate at the end of this 12-month period, with a 31-day extension of FEGLI coverage with the right to convert FEGLI into an individual policy. However, if this happens, or if you decide to convert your FEGLI coverage to an individual policy for any other reason, please consider applying for a new individually owned policy rather than converting your current FEGLI plan.Remember, when you convert your FEGLI to an individual plan you can only convert it into a permanent cash value plan (which is quite expensive and not for everyone). On top of that, you are not required to take a brief health exam to prove your health status and insurability to the life insurance company. That may sound good to you because it’s one less hoop to jump through, but believe me when I say this; taking the very quick health exam can result in you saving THOUSANDS of dollars over the life of your individual policy.
We know we covered a lot about FEGLI, but if you have any further questions not only about FEGLI, but such as AICPA life insurance, return of premium term life insurance or even a one million dollar policy, we are here to help!
If you would like to get a quote to find out how much an individually owned policy from several different types of life insurance companies would cost, over keeping or converting your FEGLI plan, give us a call or fill out the request form on this page.
Our agents work with dozens and dozens of highly rated companies across the nation, and we know which companies are going to give you the best rates for your situation. Not having life insurance is one of the worst mistakes that you could ever make for your loved ones. You never know what’s going to happen tomorrow, which means that you shouldn’t wait another day to get the insurance protection that your family deserves.