When you were first hired by the federal government, you were given a thick stack of papers to sign. It was probably a lot like when you went to buy your house (in that, perhaps you didn’t fully understand what you were signing).
Among those papers, you were given the opportunity to sign up for Federal Employees Group Life Insurance (FEGLI). Under this program, your FEGLI Basic benefit was roughly the amount of your salary (even more if you were under 45).
In addition to this Basic coverage, you were also given a chance to opt-in to even more coverage if you felt you needed it. You could get a fairly substantial amount of coverage at a relatively low cost. The younger you were, the cheaper the coverage.
The federal government made it so easy for you to sign up for life insurance – and at such a great price while you were young – you most likely took advantage of their offer.
Then – if you’re like most federal employees – you probably never really gave much thought about your life insurance needs again.
And then over time…
In the meantime, while you were working, your FEGLI premiums increased over time. These increases may have been so gradual that you didn’t pay much attention to them. Likely because as your premiums increased, your pay also likely increased (masking the cost increase).
Suddenly, after a long federal career, you are finally ready to consider retirement. You may be surprised to learn that your FEGLI will become very expensive to take into retirement. This is especially true if you decide to keep all of it in place.
Yet you may now be of an age (and health condition) where securing other life insurance coverage has become too expensive or even impossible. This is what we call the “FEGLI trap.” We talked about this concept in a recent FedImpact Webinar on FEGLI in Retirement.
The “FEGLI trap”
Your FEGLI coverage has been so convenient and affordable while you are working that you don’t think to look at alternatives for retirement. This comes at a time when you may need it the most. You discover this when it may be too late.
FEGLI was designed to be relatively affordable coverage while you are working. It was never intended to be the long-term life insurance policy that you kept forever. That is simply not what FEGLI was designed to be.
Four Actions to Take Now
So that you do not fall into the FEGLI trap, here are four actions you can take now:
- Determine the amount and cost of the FEGLI coverage you currently have.
- Project the premium cost increase (while you are working, as you enter the next five-year age bracket, and as you enter retirement).
- Determine if this is the proper life insurance coverage for you. (Just because the government has been willing to provide this benefit does not mean your current coverage is the right amount for you.)
- Figure out options to your current FEGLI coverage and the cost of those options.
What NOT to do
Based on your assessment, you want to make sure that if you’re going to make a change like going out and getting different coverage from FEGLI – either to replace it or to add to it – you want to be certain that any other policy that you purchase is in force before you cancel your other coverage. Do not cancel your coverage just because FEGLI gets really expensive in retirement. You will regret that decision if you don’t qualify for other coverage and there’s no other choice for you. You want to make certain that you have every opportunity to have the right coverage in place. This is true whether it’s with FEGLI, or it’s with private life insurance, or a combination of both.
How FEGLI fits into the bigger picture
Of course, FEGLI is just part of the equation. You’re going to need to assess all of your benefits as you approach that retirement window. I highly encourage you to attend one of our retirement workshops where we cover all of the federal benefits topics and the decisions that need to be made right there in the training session. You’ll leave with clear action items for each section.
Better yet – you’ll even have a chance to meet one-on-one following the session to get clear on all of your numbers (not just FEGLI)! Don’t delay this decision further – the trap gets stronger the more time that passes by.
