FEGLI: What You Need to Know about Federal Employee Group Life Insurance: Audio automatically transcribed by Sonix

FEGLI: What You Need to Know about Federal Employee Group Life Insurance: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker1:
But welcome everybody back to the federal retirement show. I'm your host, Val Majeski, with American Benefits Exchange, and if you were with us during our previous episode, we talked about the top 10 mistakes that at least I see federal employees make over the course of their working career and into retirement. And these are things that I've gathered over time. In my experience over the past decade, working with federal employees, and we really want to assist in not making these mistakes well. Today, we're going to be going over it in further detail about one of your benefits called FEGLI Federal Employees Group Life Insurance. I've titled this the do's and don'ts, but I'm going to really harp on one of those mistakes that we talked about in our previous installment of the Federal Retirement Show. So let's dive into the information, and it's going to be a lot to swallow, so please have a notepad handy. You can feel feel free to watch this over and over till you get a good handle of it. But we're going to cover what is ugly, how it works, the options you you chose when he first got hired, and what those things mean over time. So FEGLI federal employee group life insurance. What does that mean? Well, it's a group plan. Everybody's lumped together. So if you're male, female, healthy, sick smoker, non smoker, everybody's lumped together into this plan. Now the good news is you automatically got accepted when he first got hired.

Speaker1:
You filled out the paperwork and you chose certain options or certain features within FEGLI that are going to stick with you for the rest of your career. Unless you make a change now, you may not have known exactly what those things are. So we're going to dive into that today. I'm going to share with you what those options are, what they mean, what the costs are, how those costs can change over time. So you can make the best decisions for yourself as you're going through your working career and also for your family. Because what is this? This is life insurance. This is what happens if you pass away, if something happened to you. What does your family get in return? Now the plan is administered by MetLife. You should be familiar with them. Snoopy and the blimp. Most people understand who MetLife is, and there are three optional coverages that we're going to review options A, B and C, and we'll go into more detail as we go. Now, as I mentioned, there are three optional coverages, but it all starts with basic. Now, fairly basic is something you are automatically covered for when you first get hired. Unless you explicitly state in writing before the end of your first pay period that you do not want this coverage. Most say ninety nine point nine ninety nine percent of federal employees that I talked to will have basic. This is something again you're automatically covered for, and you must have basic in order to choose any of the optional coverages.

Speaker1:
Now the basic portion. I'll share with you an example as we go, but I'm just going to tell you some of the details of what basic has. It also comes with accidental death and dismemberment coverage. Now what does this mean? If you happen to die of an accidental death while your beneficiary would have received double your basic amount? If you happen to lose a hand, a foot or an eye, I don't wish this upon anybody, but you can accelerate up to half of your fairly basic amount while you're still alive. Now, if you happen to lose both hands, both feet or both thighs, I know I don't want anybody to go through this, but you can accelerate your full basic amount while you're still living. Now there is one other living benefit that Basic has. It's called the terminal illness benefit. Now, if you have an ailment, a disease or something and now your life expectancy is nine months or less, you can accelerate your basic amount while you're alive. To help pay for medical bills and things of that nature. Now, coverage for basic, you're probably thinking, OK, well, this is great. What do I have? What am I beneficiaries? What are my family members going to get if something happens to me? Well, your coverage is based upon your total base rate of pay. Base pay plus locality. And we'll get into an example here in just a little bit.

Speaker1:
Now, Basic has low costs, and these costs do not increase with age. At least the rate should not increase with age. The reason why you'd have more costs in your basic amount is because, again, it's based on your base rate of pay. So if you get paid more, you're going to have more coverage. You'll have a little bit more cost, but the overall rate inside there should not increase. And I say, should I'll get into that here a little bit. You pay 16 cents per thousand dollars worth of coverage per pay period, 16 cents per thousand dollars worth of coverage per pay period. And the reason why I say your costs should not go up is because that rate just recently did go up. It went up from 15 cents to 16 cents. This is the first time that I've seen in my history of working with federal employees that they increase the rate, albeit one penny. They increase the rate for fairly basic. There is an extra benefit as well within basic. Now this is only available to those that are under the age of forty five. This essentially gives you some additional free life insurance if you are forty four or younger. It's not something you pay for it get. It's free, but it ceases to exist at age forty five and there are four options to choose from in retirement. Now how does that work? All right, we're fast forwarding a little bit.

Speaker1:
You may say, Well, I just got hired or I'm in the middle of my career. I'm not really thinking of what my options are going to be in retirement. It's just something to be aware of, because when you fill out your retirement paperwork, they're going to ask you what continuation of the option are you going to want to choose? And you can certainly cancel. That's the first one cancel coverage entirely and not keep it in retirement. It's not something I typically see. You can keep twenty five percent of your basic. The government calls that a seventy five percent reduction. You can keep 50 percent. They call it a 50 percent reduction. Or you can keep everything when it comes to your basic and that is the no reduction option. Do you know which one is the most typical option that federal employees choose in retirement? If you said or thought the seventy five percent reduction, you'd be correct now without going into the crazy detail, we can certainly review your personal situation. You can reach out to us, we can take a look at it and we can share with you all the finer details and the cost involved. But the main reason why most federal employees will choose the seventy five percent reduction option in retirement is because this is the only option that is free in retirement after the age of sixty five. So the government doesn't give you much for free.

Speaker1:
Most people would say, Hey, I'll take the free life insurance in retirement. So that is why this is the most popular option. Now, let's get into the optional coverages when it comes to physically, there are three of them. The first one is Option A. It's also known as standard optional insurance, and this one's probably the easiest to understand. It just comes with an extra ten thousand dollars of coverage. So whatever you have with basic, if you have Option A at ten thousand. These optional coverages have an increasing cost structure. The cost increase every five years, starting at age thirty five and for Option A, they cap out at six dollars a pay period, which works out to be thirteen dollars a month. So once you hit age 60, the MAX you'll pay for an extra ten thousand is six dollars a pay period. Option B is probably the biggest one that people are concerned with and one that I'm going to spend a little more time on when we go through our example. But Option B is known as additional optional insurance, and this is the one where you can get up to five times your salary in additional coverage. Now, you may remember again from the top 10 mistakes. This is one where people can make a huge mistake when it comes to paying way too much for this coverage amount. I'm going to show you how that works again when we go through this example, but you can choose up to five times your base rate of pay.

Speaker1:
There's no cash values built in because this is group term insurance and similar to Option A. The premiums increase every five years, starting at age thirty five. The last option is option C and this is a family coverage, so it stands for family optional insurance. This is where you can choose up to five units of coverage for your spouse and kids. Now, it doesn't matter how many kids you have if you have zero kids, one kid or 10 kids. As long as they're under the age of twenty two and not married, they will be covered for whatever you've chosen for them. Now this is where it sometimes gets confusing because I've I've seen federal employees tell me that they have five times Option B for themselves and five times their salary for Option C for their family. Again, this is five units of coverage for Option C now. What's a unit? A unit for a spouse is five thousand, so max coverage twenty five thousand and a unit for a child is ten thousand five hundred max coverage twelve thousand five hundred to get each child will have that premiums increase every five years. Again, starting at age thirty five and this is your age thirty five, not the age of your spouse or kids. It's based on your age. There's no cash value again, but it's not convertible. So when a kid ages out, they attain the age of twenty two.

Speaker1:
We cannot convert that to an individual policy. You'll be left to find additional coverage for them outside the government. Now, this is an area we didn't talk about and top 10 mistakes, but there's a big disconnect, right? If we're looking at the teeter totter of coverage amounts, you're able to get up to five times your salary and additional coverage for you, but only up to twenty five thousand on your spouse. So if you don't have additional coverage outside the government, you need to look into it to make sure that balancing act is there. You've got equal coverage or at least an adequate amount of coverage for your spouse or kids. I know if something happened to my spouse, twenty five thousand is not going to cut it. So this is something to look into and make sure you're planning ahead and not just relying on Option C to cover your spouse and kids. So that's the basic information when it comes to fairly basic family option A, B and C. Now let's look at an example of how this can work, and you can plug in the numbers for your situation, but I'm going to use an age forty three year old federal employee. Let's say their base salary is ninety seven eight seventy five, just throwing a random number out there. Let's say they have option a five times their salary for Option B, and they've chosen the MAX five units for Option C, so they have everything.

Speaker1:
What does this look like? So we'll jump in first with Basic and do a calculation there, and then we'll go into the the optional coverage is so starting with basic if we take their salary, I said fairly basic is based upon their base rate of pay. How does this work? We'll take total base rate of base pay plus locality and rounded up to the next thousand. And then add two more thousand. So in this case, ninety seven plus is rounded up to ninety eight at two more thousand. This federal employee would have one hundred thousand of fairly basic coverage. As I mentioned, there's very low costs for this, so they could pay 16 cents per thousand dollars worth of coverage per pay period for this one hundred thousand. We can see here one hundred thousand times 16 cents per pay period. That is sixteen dollars that they're going to pay each paycheck for the one hundred thousand dollars worth of basic coverage. I did say that there's an extra benefit for those that are under the age of forty five. So at forty three years old, the factor the extra benefit factor is zero point two or twenty percent. So this federal employee would also get a 20 percent increase. So they end up with one hundred and twenty thousand dollars of basic family, plus the extra benefit. And that's free that extra twenty thousand. It decreases every year again until the extra benefit ceases to exist at age forty five.

Speaker1:
If we're looking at option a, what is option a look like? I said the costs are extremely low and Option A just comes with an extra ten thousand dollars. So as a forty three year old federal employee option, A is going to cost 30 cents a pay period. Not expensive at all. Very cheap just for an extra ten thousand now option a and basic, very cheap something I normally see federal employees keep. So if you have basic and option a, I normally see federal employees keep both of those throughout the rest of their career and into retirement. Now why option a retirement? Because if you keep option A once you're separated from service or once you're retired, it will become free of charge after the age of sixty five or retirement, whichever is later, and you'd walk away with an additional twenty five percent for free. So it's just a way to get another ten thousand five hundred dollars for free for the rest of your life in retirement if you keep option. Eight. Ok, now looking at this this slide here, Option B, this is the big one. This is the one I said. This is where people make mistakes. They pay way too much for the Option B our way, much more than they have to over the course of their working career. Now, why is that? I did mention that the optional coverages have an increasing cost every five years, starting at age thirty five.

Speaker1:
So let's take a look at in this example what a forty three year old federal employee with five times their salary and additional coverage. So we would take ninety seven plus round that up to ninety eight thousand in this example and multiply it by five. So this person would have four hundred and ninety thousand dollars of additional coverage with Option B. What would those costs look like? Well, as a federal employee, cost is very low when you're young, very low. This federal employee would pay fourteen dollars and seventy cents per pay period for that additional coverage. 14 seven very cheap. Thirty one eighty five a month is what that works out to. So relatively speaking, very cheap for an extra four hundred and ninety thousand. But that's not where the story ends. You can see by the chart the cost will increase at age. Forty five, OK, it doubles, then it almost doubles again at 50 and then it almost doubles again in fifty five, and then it more than doubles at 60. So when I keep saying the words almost double, almost double more than doubles, you can hear. Hopefully you can. How that cost can drastically increase, exponentially increase as you get older. And the biggest jump that you will see as a federal employee is at age 60, it more than doubles your option B cost more than double so as you're getting closer towards retirement and then an age where you might be needing this coverage the most.

Speaker1:
That's when the cost is going to hit you the worst. So this federal employee would go from fourteen dollars and seventy cents a pay period at age forty three. By the time they hit 60, it'll be one hundred and ninety six dollars a pay period and it doesn't stop there. It continues to increase. That is, if you continue on with this coverage. Now I've got to normally look at this and say, OK, these costs are going to increase so much overtime that most federal employees I talked to are going to cancel this at some point down the road. At what point does this come unaffordable to you? That's that's up to you in your situation. But as I mentioned, the mistake that we talked about was paying way too much for the Option B. Then you have. So if you decide, well, you know what, I want to keep this coverage until I'm at least age 60 and then I'm going to cancel it. Well, why would you even want to do that? Because you know, those costs are going to increase over time and you can pay over the next 20 years. Thirty seven thousand dollars over the next 30 years, one hundred and eleven thousand before you cancel it. There's a way that you can save a ton of money compared to FEG the Option B and keep the same, if not more coverage by going with a private plan.

Speaker1:
Now, I usually ask this question Do you want to continue to pay the cost increases over time with the Option B? Or would you rather look at locking in a rate, a rate that is not going to increase over time? It can save you thousands, if not tens of thousands of dollars over the course of your working career. So it's very beneficial if you're in relatively good health, especially if you're even at a younger age. And you say, well, Feghouli Option B is really cheap right now, even at the younger ages. Over time, you will save a ton of money by looking at private insurance compared to sticking with family option B. Now you have to qualify health wise. So if you're in relatively good health or the healthier you are, the lower your cost is going to be and the more your savings will be. What can you do with those savings over time? Well, you could put it in your pocket. It's just not going to come out of your paycheck, or you can put it more towards your retirement, put it in your your TSP or your supplemental retirement plan, whatever that is. The bottom line is you don't have to pay more than you have to when it comes to Option B, and you can still keep the same amount of coverage, if not more. We can customize this with a private plan and save yourself still a ton of money.

Speaker1:
So I'm going to harp on this because this is the biggest mistake I see people make with Feghouli, as they say, Well, this is the government plan. I'm sticking with the government plan. There's no other options for me and that's it. I'm a government employee. I'm sticking with the government plan and I'm going to say that's going to cost you a lot more money than it should. Another question people would say, Well, why don't I just wait until it gets too expensive to what? I'm going to cancel it to look at private insurance. Two reasons. Number one, we can never guarantee what your health is going to be, whatever that is. If that's 10 years, 15, 20 years down the road. If you're in good health now, you're going to get a better rate with private insurance. Number two, the cost for private insurance is going to be more expensive down the road than it is right now. So by locking in your rate at a younger age, you're going to end up saving a lot more money. I can't harp on this enough. The idea is to help maximize your benefits. Make sure you're set up right. Part of that is saving as much money as you can having less money out of your paycheck than is necessary. So Option B huge area where you can save money over the course of your career and make sure you're maximizing your benefits and setting yourself up right? Last one is Option C, the option C this is this chart shows a per unit cost OK for your benefits.

Speaker1:
Option C is where you have the family coverage for spouse and kids. You can see in this example, let's say federal employee married age forty three with two kids. Each kid, if they max it out, will have twelve thousand five hundred dollars worth of coverage. The spouse will have twenty five thousand, so this employees got four hundred and ninety thousand on themselves, plus the one hundred thousand for basic plus the twenty thousand for the extra benefit, plus the ten thousand for Option A. There's a lot of coverage there on this employee and only twenty five thousand on the spouse. Again, a big disconnect when it comes to trying to even out coverage and making sure that the spouse is also covered for an adequate amount. So this is where you really should make sure that your spouse is properly covered because the government is not going to completely do that for you now. You're not paying a ton of money for this coverage. You can see on the per unit cost here with with the chart, but you're not getting a whole lot of coverage for it. So forty three year old federal employee paying thirty seven cents per unit worth of coverage. Thirty seven cents per unit. So they're paying a dollar eighty five per pay period for this coverage.

Speaker1:
Not a whole lot of cost. Again, not a whole lot of coverage. And the cost does increase every five years, starting at age thirty five, but not something that's going to break the bank. But again, make sure that you're getting your spouse and your kids adequately covered. So let's review frankly, OK, it was a lot of information in a short period of time. I really harped on a certain area there, but just so you understand what federal employee group life insurance is, what you have, what things cost over time and how those changes are going to affect you. Remember that basic is automatic. Most likely you have it unless you specifically elected not to have it. There's low cost involved. You pay 16 cents per thousand dollars worth of coverage per pay period. There's that extra benefit that is free, free, additional insurance, but it's only available for those that are under age. Forty five. Once you hit forty five, there's no more free or extra benefit. Then there's three optional coverages you have Option A, which is just an extra ten thousand dollars. Very low cost for option A, there's Option B. That's where you can get up to five times your salary. I think we just illustrated that Option B gets very expensive. As you go through your working career. It may be in your best interest to look at other options outside the government to set yourself up properly and save a ton of money over the course of your career.

Speaker1:
Option C is the family coverage that's for spouses and kids, but we just show that imbalance for you, the federal employee, versus what your spouse and kids can get. It's a good opportunity to rectify that and make sure both of you have adequate coverages and you're paying the least amount for those coverages. And then there's options in retirement. I mentioned about basic basic. You can keep twenty five percent, keep 50 or keep it all. The most common option is keeping twenty five percent. They call it a seventy five percent reduction, but that's because it's free in retirement after the age of sixty five, whichever is later. Now Option A, if you keep option a retirement, there's no choice involved. It's automatically free after sixty five and you keep twenty five percent or an extra two thousand five hundred dollars and then options B and C, it's all or nothing. So you can keep B and C in retirement. You just got to keep paying those cost increases over time, which I think we've harped on and said they may not be in your best interest. So I appreciate you tuning in today to learn about Feghouli federal employee group life insurance and really diving into one of those mistakes that we talked about in our Top Ten Mistakes episode. Again, my name is Val Majeski with American Benefits Exchange. I appreciate you joining us on the federal retirement show and we'll see you soon 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 share transcripts, advanced search, automated transcription, transcribe multiple languages, and easily transcribe your Zoom meetings. Try Sonix for free today.