On the surface, FEGLI (Federal Employee Group Life Insurance) seems like a good deal. After all, it’s backed by the government and offers up to five times your annual salary in coverage. But the truth is, FEGLI might not be the best option for you. In fact, once you’re past age 40, it’s often more expensive to get insurance through the government than it is if you do it on your own.
What You Should Know About FEGLI
First of all, let’s talk about costs. FEGLI premiums are based on your age, and they increase every five years after you reach age 35. If you’re over the age of 50, you’re likely paying a pretty steep premium for your coverage. In fact, according to some estimates, FEGLI premiums can be up to four times more expensive than private life insurance policies. In contrast, private insurance allows you to lock in a fixed premium for the duration of your policy term, which means that you'll avoid the risks of premium hikes down the road.
But it’s not just the cost that’s an issue. FEGLI also has limited options when it comes to coverage. For example, you can only choose from a handful of coverage multiples (1, 2, 3, 4, or 5 times your salary), and you can’t customize your coverage to fit your specific needs.
Plus, if you’re looking for additional coverage beyond what FEGLI offers, you’re out of luck. FEGLI doesn’t allow you to add supplemental coverage, so if you need more coverage than what’s provided through the program, you’ll need to look elsewhere.
Private insurers can offer more additional benefits compared to FEGLI policies. For example, many private policies offer riders like accelerated death benefits, critical illness coverage, and long-term care riders, among others. These riders can offer additional coverage that you won't find in a typical FEGLI policy. While you may need to pay extra for some of these riders, they can be a worthwhile investment that could better suit your needs.
Finally, it’s worth considering what will happen to your FEGLI coverage if you leave federal service. If you retire, you’ll have the option to continue your FEGLI coverage. However, the costs of your premiums will increase substantially as you age. This can make it difficult to maintain coverage in retirement when your income may be lower than it was during your working years. Many private term insurance policies offer you the ability to convert to permanent coverage – meaning you keep it for the remainder of your life without having to re-qualify for the coverage. This comes in especially handy if you have developed a medical condition since getting the private term coverage. There are additional costs for a permanent life insurance policy vs. a term policy. In the right situation, it makes sense.
Depending on your health and other factors, it could take several weeks or even months to get approved for a policy. This can be a problem if you need coverage quickly or if you find something unexpected during the insurance application process like a previously undiagnosed illness. The best practice is always to have your new coverage in place prior to canceling an insurance policy.
So, is FEGLI right for you?
That depends on your specific situation. If you’re young and healthy, FEGLI may be a good option for affordable coverage. But if you’re over the age of 40, you may be better off exploring private life insurance policies.
Remember, life insurance is an important part of financial planning, and you want to make sure you’re getting the coverage you need at a price that fits your budget. If you have any questions about FEGLI or life insurance in general, don’t hesitate to reach out to us. We are here to guide you through the process.