Life insurance is an incredibly important investment which helps financially protect your loved ones in the event of your death.
Because it’s so important, it’s essential you select the right type of insurance.
It’s our goal to help you find the absolute best life insurance for you and your family. Part of that is understanding what FEGLI (Federal Employer’s Group Life Insurance) is and whether it’s right for you.
We explore FEGLI, one of the most common group life plans in the United States, in more detail below.
We also tell you exactly why we believe most people should replace their FEGLI right now.
What is FEGLI?
FEGLI is short for the Federal Employer’s Group Life Insurance.
It’s the largest group life insurance program in the world. It covers more than 4 million people in the United States.
FEGLI was created in 1954. It was created by the federal government to provide life insurance coverage for federal employees and their families.
The coverage provided by FEGLI is subsidized by the federal government. Though this might mean you’re paying less for coverage now (when compared to a private insurer), the rates will not be the same in the future.
FEGLI works on a different set of rules from private life insurance providers. This is why it’s so important to understand the basics of the program when making a life insurance decision.
What Policies Does FEGLI Offer?
Only those that are employed with the federal government are employed for FEGLI.
It’s important to note that new federal employees are usually automatically enrolled in the most basic plan.
Even though enrollment is usually automatic, you are given the option to waive this enrollment if desired. You can then look for your own private life insurance policy.
FEGLI offers several different plans that you can choose from. If you decide to go with FEGLI, choose the one that best meets your individual family needs.
The basic plan, mentioned above, consists of coverage that is equal to your annual salary rounded up to the nearest thousand plus an additional $2,000.
Payments for the basic plan must be paid every two weeks. The policy costs roughly $0.15 per every thousand dollars of yearly coverage. Some federal employees, particularly postal works, get the basic plan for free.
The next option you have is known as Option A. It provides only $10,000 of coverage and is best for those who only want their funeral expenses covered.
The price of Option A varies widely. Payments must be paid every two weeks. Payments go up as you age.
The most flexible policy offered by FEGLI, Option B, lets you select your desired amount of coverage, anywhere from 1 to 5 times the amount of your annual salary.
Once again, the price you pay depends mostly on your age. Younger people pay far less than older people.
Another flexible policy, Option C from FEGLI also lets you select a coverage amount from between 1 to 5 times your annual salary.
Option C is unique in that it’s a family plan. You can get coverage for your spouse and children as well.
Like Option A and Option B, the cost of Option C largely depends on your age.
Of course, it also depends on the amount of coverage you select.
Top Reasons to Replace Your FEGLI
FEGLI is a great form of life insurance for many people. However, we recommend most everyone should seek out alternatives.
Here are the top 7 reasons to consider replacing your FEGLI right now:
1. Rising Premiums
The monthly premiums for FEGLI plans don’t stay the same. They go up as you age.
A plan which is cheap when you’re younger, might become prohibitively expensive the older you get. FEGLI plans are particularly expensive for those over age 50.
Unfortunately, this increase in premium cost doesn’t come with an increase in coverage. The opposite is actually true.
Your coverage amount actually goes down as you age. You are required to pay more yet you receive less coverage.
2. Decreased Retirement Coverage
FEGLI does give you the option to continue your coverage after retirement.
However, all the coverage types, but particularly the Basic plan, decrease substantially when you retire.
The most common way it does this is with the 75% reduction option. Your coverage begins to decrease by 2% each month until it reaches just 25% of the original amount.
The upside to decreasing coverage is that you no longer have to make payments. After retirement (at age of 65), you can still receive your decreasing FEGLI coverage without making any more payments.
3. No Cash Value Components
One of the best benefits of private life insurance is how the premiums you pay build up a cash value component when choosing a permanent product.
With a FEGLI plan, on other hand, your premiums are simply gone. You aren’t able to accumulate any of this cash value.
The main reason for this is because FEGLI plans are all term life plans (or increasing term life plans) and they don’t offer whole life plans.
If you want a permanent product, you’re not getting one here.
4. Only Term Life Insurance
And this brings us to this next reason to replace your FEGLI right now: it’s not permanent, and you don’t have the option.
FEGLI only offers term life insurance. You pay a set rate for a specific term. Then you must pay a new rate for a new term if you wish to continue receiving life insurance.
If, for any reason, you really just want permanent life insurance, for benefits like the payment rate continuing for life, you’re forced elsewhere.
5. There Is No Taking Your Coverage With You
Your FEGLI coverage stops when you are no longer employed by the federal government.
Though it might last until the end of the calendar year, you will not be able to take the life insurance coverage with you once your job ends.
6. Forget About Conversion Privileges & Riders
A lot of the benefits of life insurance beyond your standard term product come into play with permanent products.
Even then, a term policy can be highly customized with several different types of riders, all of which are not available with FEGLI plans.
If you truly want to leverage your policy for all facets of life, you just don’t have flexibility here.
7. Low Coverage Limits
The top FEGLI plans still have coverage limits of 5 times your annual salary.
With most experts recommending 7-10x your annual salary, especially as a young adult, you’re now having to get a secondary policy if you want the proper amount of coverage.
There’s no denying FEGLI has its benefits and limitations.
Yet it’s still the right choice for many people. It’s an affordable life insurance option, in the beginning.
However, we do recommend looking into alternatives, especially as you age. The top term life and whole life policies come with a lot of benefits that FEGLI simply cannot match.
There’s also far more options to choose from. There are literally hundreds of life insurance companies who each offer their own specific types of plans, so it’s tough to limit yourself and pigeon hole your financial security.
Of course, another option is to consider combining basic FEGLI coverage with coverage from a private life insurance provider.
What we’re saying is you have a lot of options available.
But just because you were automatically enrolled for FEGLI as a federal employee, doesn’t mean you shouldn’t check out these additional options.