Exploring FEGLI Option B Alternatives: Finding the Best Life Insurance for Federal Employees

8.3.24: Audio automatically transcribed by Sonix

8.3.24: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker1:
And welcome back to the Federal Retirement Show. I'm your host, Val Majewski with American Benefits Exchange. I really appreciate you taking the time out of your busy schedule to view our content to join us. I do highly recommend, as I always do, to go back and view our previous episodes. We now have over 100 episodes for you, the federal employee, to view a lot of great content out there, and there may be topics that you didn't know that you wanted to learn about. Go browse our previous episodes. You can see everything that we've provided for you, the guests that we've had on the different opinions, the different discussions that we've had, and if there is something that you have not yet seen, if there is a topic that you would love us to cover, please reach out to us. You can go to our website Federal Retirement show.com and you can request certain information from us. Or you can even request a full benefits and retirement review. I'll talk about that here in a little bit. But with today or for today, we're going to be going over a topic that I just had a conversation with a federal employee about, and we're were going back to an oldie but a goodie fegli option B now when you talk about Fegli option B, you may not know what the heck I'm discussing, right when you hear that word fegli what is fegli? What is option B? Well, Fegli federal employee Group life insurance is something that you signed up for when you first got hired, and if you didn't make any changes along the course of your working career, those elections that you made when you first got hired remain exactly the same.

Speaker1:
But the problem is, when you first got hired, you were not properly, and in most cases educated and trained on how fegli works, the optional coverages that you selected, what those mean, what the changes are over time, how things modify. And if you did not make a change, as I said earlier, that has remained exactly the same and that could affect your paycheck, affect your bottom line. And and there there may be better solutions and things out there for you. So what I want to discuss today, what we're going to dive into is an example of option B and what it is, how it changes over time, and how you can provide yourself the same benefits, actually better benefits at less cost. So let's dive into today's topic. Thankfully, option B alternatives. Less cost and more benefits. Now, as I said, I've had numerous conversations with federal employees recently, and this was one that just came up and we were going over a full benefits and retirement review with a federal employee. And the discussion revolved around the main part of the discussion revolved around Fegli option B and what this person should do when it comes to this election, this this benefit that they have through the government.

Speaker1:
So if you went back, we did a previous episode recently of Maine federal employee concerns, and we talked about three different things. We talked about Fegley option B, not having enough money in retirement and survivor benefits there. There were a couple others, but these were some of the main concerns that federal employees have. And it just so happened that this was a huge concern for this veteran employee that I just talked to. So, as you know, throughout the episodes that we have, um, not only are we giving you information, but we're sharing real life scenarios, real life examples from federal employees just like you and the questions that they have. So if other federal employees are asking these questions, I'm sure you are going to have these questions as well and want to know what the answers are. So we'd like to use real life examples based on the conversations that we're having with federal employees when we're going through their benefits and retirement review and bring them up to you. Now, we we keep the specifics out, right? We keep the names out personal information, but the scenario is the same. So we highlighted in that previous episode we were talking about main concerns paying too much for Phegley option B now again, you may not know what your option B is. Now. First of all, I'm going to back up again.

Speaker1:
I'm going to say what is what is Phegley federal employee group life insurance. It is a group plan. Group plan. Everybody's lumped together whether you're healthy, sick, smoker, non-smoker, male, female. Everybody's part of the group. You're a federal employee. You're part of this group if you have fegli. Now, there's several different parts of factly. There's basic, which most people will have because it's something you're automatically covered by. And then there's several different options. There's three of them option A, B, and C, and you have to have basic life insurance in order to elect option A, option B, or option C, and you can have a combination of those or all three. Well we're going to talk about today is option B like I said. And what is option B. This is the option that allows you to get up to five times your salary in additional life insurance on top of your basic. And your basic is essentially one multiple of your salary. So you can get up to five times more with option B sounds awesome. And when you first get hired, they may have said, hey, you can get up to five times your salary, additional insurance, and you thought, great, let's sign up for this. Let's do it and set it and forget it. And you never thought of it since? Haven't thought of it since. Unless somebody brought it up to you or it was explained to you along the way.

Speaker1:
So why do I say paying too much for option B? Because while option B can get you up to five times your salary in additional coverage, the cost for that increases every five years, starting at age 40. So while you're very young within your working career, you might think, this is great. I've got all this extra life insurance and it is extremely cheap. But if you were not aware, the cost will start to increase every five years starting in age 40 and it can get super expensive, it exponentially goes up. And we're going to share with you this personal example. So again how much does the option B cost? I'm going to use an example to show you. And how does that cost change over time? You'll see exactly what those increases are once you hit those five year benchmarks. Let's use an example here. So I've got a 43 year old federal employee and just I'm I'm 43. So imagine this was me. I'm the federal employee, 43 years old okay. Male. And my salary in this example that I had recently was $155,000 plus, and I have five times option B. Okay, so how do I calculate the amount of coverage I have? I take the 155 plus round that up to 156, multiply it by five. I will have $780,000 of additional life insurance just from option B. Just from option B, so how does my coverage look and how does my cost look over time? Now this is a snapshot of our federal employee benefits workbook.

Speaker1:
Now at American Benefits Exchange. Will we provide benefits and retirement reviews and analysis. We will give you two different reports. You may have seen this on our previous episodes. We showed little snapshots of the reports that will give you. But within that report is a full overview of not only your coverage, but of your fegli costs. And this is a snapshot of that report showing the cost for option B. And you can see this chart here. It shows the per thousand dollars both by weekly and monthly cost. Because while you're working, the costs are biweekly. Then you get paid monthly in retirement. So if you happen to keep this coverage in retirement, it shows the cost on a monthly basis. But again, five times $780,000 of additional coverage. Looking at this chart at 43 years old, the cost does not seem that crazy yet. Yeah, I emphasize yet $23.40 per pay period for 780,000. Now, relatively speaking, when you're looking at costs of life insurance, that's not bad. Not bad at all. But as you can see through the chart, at every five year benchmark there will be an increase in cost. So let's look at how this cost will increase over time. 2340 currently at age 43 when I would hit 45 years old, you can see the cost. The factor goes from $0.03 to $0.06 per thousand.

Speaker1:
So that's a doubling right at age 45, just a couple of years down the road, I'm going to now pay $46.80 per pay period for this coverage. At age 50, it's going to almost double again. Goes up to $78. At age 55, it almost doubles again, goes up to $140 a pay period. Now, you can understand that if I say double, almost double, almost double, you can see how exponentially this cost will increase. At age 60, you see the greatest increase in cost. The cost more than doubles would go to $312 a pay period, and will continue to increase from there every five years, capping at age 80, which seems very ridiculous, right? What would be $4,800 a month if I were to keep this coverage at to age 80? Now, this assumes that my salary. Because remember, this is five times your salary, that my salary remains constant all of these years. Obviously, if the salary goes up, I see cost of living adjustments, pay raises, promotions, what have you. Five times that salary will increase my coverage. Yes, but we'll also increase my cost. So this is all assuming that my coverage and my salary remain constant over the next, however many years. Right? Forever. You can see the cost over the next 20 years for this coverage is $52,000. If I were to have kept it for 30 years from age 43 to 73, I would have paid a $160,000 for this coverage.

Speaker1:
So there's got to be a better way. The question I would generally ask, and the question that I asked this person in this scenario, I said, look, do you want to continue to pay these cost increases over time? The answer was no. What if you can look at extra coverage or coverage outside the government that would lock in your rate, lock it in, would not increase over time, and could save you tens of thousands of dollars over the course of your career. Is that something you'd be interested in? And it sounds like common sense, but yes, this federal employee said yes. I'd like to look at those options. Now, what are those options look like? We're going to talk about that here in a second. But understand right. While you're young this is cheap coverage. But as you get older you're not going to get a letter in the mail. And if you're not educated on this, you're not going to get an email, a call, you know, happy birthday. Congratulations. You hit the next five year benchmark. Just giving you a heads up that you're phegley option B costs increased. Happy birthday. I've said this before on this podcast, on this radio show that if you have that letter, send it in. I'd love to see it. It doesn't happen. So if you don't look at your pay stub, if you don't monitor that and see how things change over time, you may not have noticed that the cost for your optional coverages, your life insurance has increased.

Speaker1:
And it's the same for option A, option B, and option C. All three of those increase every five years, but the one that shows the most significant increases is option B, so be aware that if you don't make a change, it will just continue to come out of your paycheck and the cost will continue to increase. So the question is again, do you want to pay these increases over time? And generally the answer is no. And what if you can lock in your rate for the same amount of coverage and save yourself tens of thousands of dollars over the course of your career? Is that something you'd be interested in? The answer generally is yes. I hope you would answer the same way. So what do you do in that situation and how does that work? Well, if I said before, you're a part of the group, right. And the group, the reason why these costs go up over time is because the general health of the group, as you get older, gets worse. So the general cost for the group gets higher. As an individual, it's going to be based on your health and your health alone. So if you're generally healthy enough to get and qualify for life insurance coverage outside the government, this is beneficial for you no matter what your age is.

Speaker1:
I will tell you that in every scenario that I've run, whether it's a 25 year old or a 55 year old compared to the cost effectively option B, over time you will save money going with private life insurance rather than sticking with option B if you're looking at cost over time, total cost over time will be cheaper outside than it will be within the option B. Okay, now, if you're generally not healthy enough to qualify for life insurance, then perhaps you have to stay with option B, but if you are healthy enough and you're interested in saving money, it is beneficial for you to at least look at those options. So in this scenario, what would it look like? And now this is another snapshot from the software that we have that generates the reports to show what the comparisons would be. Now just in general, there are so many ways that you can design a life insurance plan, a proper life insurance plan outside the government. The government only gives you group term options. There's no equity built up. There's no flexibility and customization really part of this. You can choose the different options, but it's really just set with what they give you. Outside the government. There are so many different ways you can go, but I'm going to try and keep this comparison very simple and easy to understand. I said you have group term insurance, group term insurance.

Speaker1:
That term will last as long as you want it to, as long as you can keep paying the cost and you can stomach those cost increases. I'm going to compare group term insurance in this example to private term insurance. And you can see the different savings. So here's what I've done. I looked at term insurance for two different periods a 20 year period and a 30 year period. Those are generally the most popular private life insurance term periods out there. If you were to get private term insurance. And let's just look at the costs and look at those costs over time. And remember, those costs are locked in for the duration of the term. So you can see here from my chart, if I'm if I'm switching everything to biweekly premium. Currently this federal is paying $23.40 per pay period for Fegli. Option B, as I said, relatively cheap. Now if they're in above average health, right, a little bit greater than average health. Not not excellent health. Not the best thing that you can possibly get, but let's say above average health. Here are their ratings. Or are they rates for a 20 or 30 year term. So 20 year would be $34.32. 30 year term would be $60.60. You might say, well, Val, that's more expensive than I'm paying now, why would I stick with that? Why wouldn't I just stay with the phegley option B it's cheaper and you would be correct temporarily it's cheaper.

Speaker1:
But remember that cost is going to increase at age 45 and again at 5055. So on the next question would be, well now why wouldn't I just wait until that point? Why would I just wait until the cost is going to get too expensive and then look at private life insurance? Well, there's two things working against you. The older you get, the the higher your rates are going to be. For private life insurance, it's just a fact. You're older, the rates get higher, and if you're healthy now, I cannot. And nobody can guarantee what your health is going to be several years down the road. So if you said, well, I'm going to wait till I'm 50, okay. Well, I can't guarantee what the health is going to be. And maybe you're not healthy enough to get life insurance outside the government at that point. And your rate is going to be lower now at age 43 rather than 50. So if we looked at it today, today, and I say the earlier you can do that the better. But today you would pay a little bit more, even with above average health than you would with the option B, but let's compare that cost over the next 20 years, because even though you're paying a little bit more today, that rate is locked in. Locked in. So let's look at even at the chart the chart in the bottom here we've got the green line and the blue line that are straight across.

Speaker1:
That represents the locked in rates for both the 20 and 30 year term period. That increasing red line that steps up every so often, every five years is the increasing cost of option B, and you can see how much higher that gets compared to our locked in rate as you get older. So all of that room underneath those green and yellow, green and, um, blue lines, that's your savings compared to the rising cost of option B, if you were to lock in your rate for 20 years in this example, this person would save $34,000 over the next 20 years, compared to the rising cost of option B $34,000. If for 30 years, even though the cost is, uh, more than double what you're paying now. It's locked in for 30 years, and this person would say $113,000 compared to option B, and have the same amount of coverage during that time, right? Their family, their, their loved ones would be protected with this massive amount of insurance, $780,000 in case something happened and save again $113,000 over 30 years, that is. Substantial. Where can that extra money go? If it just didn't, it just didn't come out of your paycheck. If you decided, yeah, I'm going to make this switch, and I know that I'm going to get the same coverage, and I'm going to save even at $34,000 over the next 20 years.

Speaker1:
Where can that extra $34,000 go that would otherwise have just come out of your paycheck? You can put it in your bank account. You can put it towards TSB, you can just have more discretionary income because it's not coming out of your paycheck. Awesome stuff. Okay, now you might be thinking also. Well, Val, um, I know term insurance eventually runs out and I don't plan on, you know, passing away over the next 20 or 30 years. So what else is there? And that's true. I mean, we generally speaking. Right? We want you to live long into retirement, and we're not going to predict at what time you're going to die. We don't have that crystal ball. That's not our choice. That's not what we do. But we just plan accordingly in case something happens. So we're just saying, look, here's a more cost effective way to pay for your benefit. And if you did get a 20 or 30 year term plan and did not pass away, what other benefits are provided? You heard me say in the beginning. Less cost, more benefits. Less cost, more benefits. Now, what do I mean by that? There are additional benefits with the plans that are offered outside of family, outside of what the government offers. And not only is it just term right, it's not just saying, hey, over the next 20 or 30 years, the only benefit that this plan will pay is if you pass away.

Speaker1:
That is it. The new insurance out there, the new life insurance. And I do not like offering to federal employees or anybody out there life insurance that does not come with additional benefits, but new insurance comes with additional benefits that will pay you not just if you pass, but if you get diagnosed with something. Because with advances in modern medicine, you might say, well, yeah, the chance of me dying over the next 20 or 30 years is a lot slimmer than the chance of me getting diagnosed with something. So what if I diagnosed with something that doesn't kill me, but I'm in a bad situation, or I'm in a situation where I need benefits? What does this plan do for me? What if you get diagnosed with something and what is that something? Right? What? What can this plan do now? Life insurance in general does come with usually a terminal illness benefit. So this is an additional additional feature that's automatically included. The government does come. The government plan does come with a terminal illness benefit, but is only on your basic life insurance amount, and you have to have a life expectancy of nine months or less, and you can accelerate part of your basic amount, meaning you can take that money, some of that money of your basic life insurance and utilize it to pay bills or medical expenses because you've been diagnosed with this terminal illness.

Speaker1:
But that's nine months or less than it's your basic only with the outside coverage you If you got it for 780, just like you have your option B, you can access that death benefit if you get diagnosed with a terminal illness. Life expectancy of two years or less. So that's the first thing. It's a better benefit than what you're fegli offers. Then there's chronic illness. Chronic illness benefit. And what does that mean. This is not available with fegli. This means if you get diagnosed with being unable to perform at least two of the six activities of daily living, you can access a portion of your death benefit of the $780,000 while you're still alive again to help pay for medical expenses, bills, and things like that. Now, there are limits on how much you can access, but it's it's pretty significant the amount of money that you can access. We can talk about that in more detail as we go. I just want to give you the the broad view, right. The high level view of these, these benefits. Now two of the six activities of daily living. That sounds like a long term care type claim. Yeah. This is a long term care type alternative. Not true long term care insurance but a long term care alternative. You get diagnosed with something you're unable to perform. Two of the six activities of daily living. You can trigger this benefit and access money while you're still alive.

Speaker1:
It's not just a death benefit, there's also critical illness. This is just a snapshot of some of the critical illnesses that are covered. But ALS, Lou Gehrig's disease, cancer, end stage renal failure, heart attack, major organ transplant, stroke. If you get diagnosed with having any of these, you can access part of your death benefit while you're alive. Again, the to pay for medical bills or things like that. It's not a reimbursement plan you do with the money what you want to do with it, but you can access your death benefit while you're alive. Now, it's important to note in any of these, and I've got a couple more to discuss, but in any of these, it does reduce your death benefit. So if you're accessing or accelerating, these are called, uh, accelerated benefit riders or living benefit riders because it's not just a death benefit. But if you utilize some of that, it does reduce the death benefit in the end that's paid to your beneficiaries, but it gives you the option to access this while you're alive. Right. A term insurance does not come with cash build up or doesn't build equity, but it provides these additional benefits that you can access should you be in a situation where you need it. So I talked about a terminal chronic critical illness. There's also critical injury. So as critical illness was Lou Gehrig's disease. You know heart attack stroke cancer critical injury is if you're in a coma, experienced paralysis, severe burns or have a traumatic brain injury, you can access that benefit while you're alive.

Speaker1:
Again, something that is not normally provided on the old life insurance. It's solely just a death benefit. Then the last thing is Alzheimer's or Lewy body dementia. So if you're diagnosed with mental or cognitive impairment by a medical professional, you can access that money while you're alive. And these provide additional benefits for you. So it's not just the death benefit. So not only if I back up, not only is it, in my opinion, better for you to look at private life insurance, even if it didn't come with these additional benefits, because it's going to save you money over time. Just death benefit to death benefit. But why not get the new insurance that has these additional benefits as well that you can access? If you get diagnosed with something, there's chances are and you don't want to you want to live and and plan for retirement, but you want to make sure your your family's protected, you know, in the same way that you provide auto insurance, home insurance, and you don't want to ever use it. I don't want you to use your term life policy for for death benefit. But what if you get diagnosed with something? You have these additional benefits that are there for you in case something happens and can help mitigate costs for medical expenses or other things because of that, that illness or injury.

Speaker1:
So what do I what do I recommend? Well, number one, um, figure out if you have option B. If you're not sure, reach out to us. Go to our website. As I talked about earlier, fill out the form, get a full benefits review and we can see if you have option B where do we figure that out? We look at your leave and earnings statement your pay stub. If you're not paying for it you don't have it. And if you do have it, you're probably paying a lot more than you should for it. So figure out if you have option B. If you do, I highly recommend you get a full benefits review. If not a full review, at least a review of your phegley and get a phegley option B comparison performed as I showed you on the previous slides, with not only seeing the costs, but also what can the savings be over time? Um, figure out and get answers to all of the questions that you have and we can put you with the best situation moving forward by looking at the new insurance, life insurance that comes with living benefits. And it's not just term insurance that has that. You can get that on permanent plans as well. The conversation that I had with the federal employee revolved around designing a true life insurance plan.

Speaker1:
Right now, I just showed you a comparison of, you know, group term insurance to private term insurance. So that's that could be one way to go. That's the simplest way to compare this. But the good news of private life insurance is that you can customize an entire plan. The government only allows five times your salary. What if you need more coverage than that? You can customize it. What if you need something in between? You can figure that out as well. What if you need some permanent life insurance? We can customize that too. So get a full analysis of not only your benefits, but especially of your fegley. Determine what solutions are right for you, for your protection, for your family. Making sure you have all the bases covered when it comes to not only what happens if you die, but what happens if you get diagnosed with something. You want to make sure that your plan will provide you a benefit for that as well. So I really appreciate you taking the time to learn about vaguely option B alternatives and figure out ways that you can spend less and get more benefits for you and your family. Again, my name is Val Majewski with American Benefits Exchange. It's always been a pleasure, um, hosting this show and providing this information for you. As I said earlier, go back and view our previous sessions, the previous episodes that we have, and look forward to seeing you again on a future episode.

Sonix is the world’s most advanced automated transcription, translation, and subtitling platform. Fast, accurate, and affordable.

Automatically convert your mp3 files to text (txt file), Microsoft Word (docx file), and SubRip Subtitle (srt file) in minutes.

Sonix has many features that you'd love including secure transcription and file storage, automated translation, advanced search, automatic transcription software, and easily transcribe your Zoom meetings. Try Sonix for free today.