Is the Federal Employees’ Group Life Insurance Plan (FEGLI) Worth It?
Federal Employees’ Group Life Insurance plan or FEGLI for short is the largest group policy in the world, covering 4 million Federal employees and retirees, as well as many of their family members. Like other group policies, it allows employees to enroll in life insurance coverage without a medical exam. Group policies can be tempting because of the limited underwriting and the convenience of having premiums deducted right from your paycheck, but in most cases an individual policy will always be a better bet. In this post, we will help you decide if the Federal Employees’ Group Life Insurance Plan (FEGLI) is Worth It.
What are Your FEGLI Coverage Options?
The FEGLI offers a few different options. Here is a brief description of each of the options available:
Basic Option: Employees are automatically enrolled in this coverage unless they choose to waive it. The amount of coverage is equal to the employee’s salary plus $2,000 (an employee with income of $80,000 would be eligible for $82,000 in coverage). The cost each biweekly period is $.15 per $1,000 of coverage. The rates for the Basic option do not increase with age.
Option A: This option offers $10,000 of coverage. The biweekly cost of Option A starts at $.30 if the employee is under age 35 and increases every 5 years thereafter. The employee must elect this coverage
Option B: This option allows coverage in multiples of 1,2,3,4 or 5 times the employee’s income. The cost starts at $.02 per $1,000 of coverage until the employee reaches age 35 and then increases every 5 years thereafter. The employee must elect this coverage.
Option C: This option allows coverage for the employee’s spouse and unmarried dependent children under the age of 22. The basic amount available for spousal coverage is $5,000 and $2,500 for each eligible child. These amounts can be increase by 2,3,4 or 5 times the basic levels. Rates will increase with age.
Benefits to FEGLI Program
- Like most other group plans, FEGLI offers life insurance without having to take a medical exam. This can be a huge benefit to those who have major health issues and would otherwise have trouble getting approved for an individual policy.
- If the employee is under the age of 45 and covered under the Basic insurance option, they will automatically have extra coverage at no additional cost based on an age multiplier. This extra coverage decreases each year and eventually disappears at age 45.
- Accidental Death and Dismemberment coverage is included at no additional cost but the coverage amount is only based on the Basic insurance coverage amount.
Drawbacks to FEGLI Program
- Rates increase every 5 years after the employee reaches age 35. The rates will become cost prohibitive for most people when they reach 55+.
- There is a cap to the amount coverage available. For instance, Option B caps out at 5x annual salary up to next even $1000. In most cases, 5x salary will not be enough to meet coverage needs for most people with dependents.
- If the employee elects 50% reduction or no reduction of coverage at retirement, there is an extra premium for this higher level of coverage.
How Do FEGLI Rates Compare to an Individual Life Insurance Policy?
For most employees who are married and have dependent children, Option B would be the most logical choice of coverage. Here is an example of how FEGLI premiums would compare to a fully underwritten individual policy for 20 years of coverage. We will use a 45 year old male employee with a salary of $80,000 per year as our example applicant. Let’s assume that the employee wants to max out the Option B FEGLI coverage amount at 5x salary. That coverage amount would be $482,000 (annual salary +$2,000 + 5X salary). We will also assume that he qualifies for a ‘preferred’ health risk rating with an individual policy and we will use American General as the individual policy provider. Since we would not normally apply for exactly $482,000 of fully underwritten coverage, we will use a coverage amount of $500,000 instead.
| Age | FEGLI Annual Rate | Individual Policy Annual Rate |
|---|---|---|
| 45-49 | $1,151.80 | $724.00 |
| 50-54 | $1,671.80 | $724.00 |
| 55-59 | $2,711.18 | $724.00 |
| 60-64 | $5,727.80 | $724.00 |
| Total Premiums Paid | $56,312.90 | $14,480.00 |
As you can see, the FEGLI coverage will cost almost $42,000 more than the individual policy over a 20 year period and offers $18,000 less in coverage ($482,000 versus $500,000). If you are in good health, it is a no brainer to opt for an individual policy over the FEGLI coverage option. Even if you have moderate health issues, you might be better off opting for individual coverage. You can check your rates using the FEGLI Calculator yourself against the rates of an individual policy using our free quoting software.
Replacing Your FEGLI Coverage
Purchasing an individual life insurance policy, especially if you are healthy and plan on keeping coverage beyond your retirement age, could add up to huge savings in the long run compared to keeping your FEGLI coverage. These extra funds could be used toward your retirement savings, mortgage debt, college savings for your children and more. Even if you have health issues, an individual policy could still be a better option. If you currently have FEGLI coverage and want to know if an individual policy is a better option for you, we can help. We will give you a free, no obligation analysis of your specific situation and show you how rates for an individual policy will compare to your current FEGLI coverage. If you would like a complimentary analysis of your coverage, feel free to give us a call at 888-687-9444 or email us at info@archstoneagency.com
About Us
Archstone Insurance Services, LLC is an independent agency that shops over 40 of the top life insurance carriers to provide huge savings on life insurance coverage for our clients. We are happy to answer any questions you might have about any of the insurance products we offer, your planning needs or your existing coverage. Feel free to call us directly at (888) 687-9444 or email us at info@archstoneagency.com.
