Keeping FEGLI Coverage in Retirement by Kara Jones
As per Kara Jones, FEGLI coverage (Federal Employees Group Life Insurance coverage), as the title name suggests, offers a group term life insurance coverage, which is a kind of term insurance whereby the employer gets a master deal with coverage for employees.
The term rules don’t make cash value. FEGLI coverage comprises of Basic life insurance coverage with three types of Optional insurance. Employees are required to be cautious to choose reasonable coverage for retirement benefits, and before making a retirement policy, be aware of what is available and how much to pay for the suitable coverage.
According to Kara Jones, If you’re approaching retirement and want to keep your FEGLI coverage in retirement, then you must know the fundamental rules as follows:
- Your Basic life
- Option A-Standard: equals ten thousand dollars more life insurance coverage.
- Option B-Additional: equals 1 to 5 times of your monthly income of more life insurance coverage.
- Option C-Family insurance: depends on the type of coverage you have. It equals 1 to 5 multiples of life insurance coverage of family members. Every multiple equals five thousand dollars coverage of husband/wife and two thousand five hundred dollars coverage on every eligible kid. Usually, eligible kids in this option are under age 22.
These options are continued into retirement benefits if:
- The employee retires on an instant compensation (which starts within a month after retirement);
- The employee has five years of service insurance instantly preceding the compensation starting date or for the whole period(s) in which coverage was available;
- The employee got registered for FEGLI coverage on the retirement date; and
- The employee has not changed life insurance coverage to an individual policy.
Kara Jones said, the conditions for long-lasting life insurance coverage as compensation are the same. Compensations are required to fulfill the five-year/all-options obligation as of the date they begin getting a reimbursement.
Under the Federal Employees Retirement System, an instant compensation or allowance comprises eligibility for compensation or allowance if the employee leaves the job at the lowest retirement age and has ten years of service.
If an employee meets the three conditions aforementioned, he/she may continue life insurance coverage after retirement, even if he/she wants to defer receiving an annuity.
If an employee wants to defer getting annuity, his coverage halts until his annuity starts. If he needs to continue the coverage, it will start when his monthly reimbursements start, even if he changes life insurance to an individual policy when he separates for retirement.
If an employee is not eligible to (or he/she doesn’t desire to) continue life insurance coverage after retirement, then there is an option to change coverage to an individual policy.
Normally, for uninterrupted secured insurance, an employee must get the individual policy and pay the first amount to the insurer within one-month non-permanent extension of coverage duration.
Exception: If an employee cannot physically apply for an individual policy, then any individual who has a power of attorney can convert for you. The employee’s insurance assignee(s) can convert Basic, Option A, and Option B coverage. In contrast, the family members may convert the Option C coverage (if the employee is registered for Option C).
If an employee is entitled to continue Basic insurance as an annuitant, then it is required to select the desired sum of Basic coverage to be continued after age 65 (or retirement). The options are 75% Reduction, 50% Reduction, and No Reduction.
Note: coverage is not reduced when a person is still an employee at age 65 described by Kara Jones.
On selection of 75% Reduction, Basic insurance decreases by monthly 2% of the pre-retirement sum starting at age 65 until 25% of the pre-retirement sum is left. While 50% Reduction means that Basic insurance decreases by monthly 1% of the pre-retirement sum starting at age 65 until 50% of the pre-retirement sum is left.
No Reduction option means that Basic insurance doesn’t reduce, and 100% of the pre-retirement sum is allocated as a death benefit.
75% Reduction option offers free coverage after an employee is retired and becomes 65 years old.
On selection of 50% Reduction or No Reduction, an additional premium must be paid for this coverage after retirement and reaching age 65.
After retirement and reaching age 65, Option A automatically starts decreasing by 2% of the pre-retirement sum every 30 days until 25% of the pre-retirement sum is left. Option A is without charge once it begins to decrease, but a reduction election cannot be made at the time of retirement.
According to Kara Jones, on retirement or getting compensation (for compensationer, normally after one year in nonpay status), an employee is required to decide the number of Option B or C multiples to continue. It is also required to choose whether to get few or all multiples to reduce or not reduce after turning 65 years old (or retirement).
In option B or C coverage, you can get Full Reduction for few multiples and No Reduction for others. Moreover, right after turning 65 years old, a notice is sent to you, offering a second chance to choose this election. There is an option to elect to continue the original reduction election(s), which are chosen at retirement or alter them by giving back the notice to the Office of Personnel Management at that time.
On selecting Full Reduction, after retirement and turning 65 years old, all multiples begin reducing by monthly 2% of the pre-retirement sum until the sum reduces by 100%, and the last worth is zero dollars. Until the reduction begins, you need to pay the premiums the same as active workers do, suitable to the age. After reduction starts at age 65, withholdings are discontinued, and Options B or C are without charge.
Options B or C don’t reduce in any way if you select No Reduction. After turning 65 years old, you can keep paying the same premiums as active workers, suitable for your age.
This process can be confusing for most of the federal employees, so it is better to take advice from an expert who has experience regarding retirement benefits and understand very well how this system works.
