In this episode, Val dives deeper into Federal Employee Group Life Insurance. Specifically, what is Option B and how does it work? Visit our website to learn more and get in touch with us!
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How FEGLI Works Option B.mp3: Audio automatically transcribed by Sonix
How FEGLI Works Option B.mp3: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.
Val Majewski:
But welcome back to the Federal Retirement Show. I'm your host, Val Majewski, with American Benefits Exchange. And today we're revisiting a topic that we talked about previously when it comes to your family, your federal employee group, Life Insurance. But we're going to hone in on one specific benefit within finally called option B and we're going to talk about option B replacement. Now, really, it's option B alternatives. But the the thing that we call it is option B replacement. I want to get into the why of what we're going to do. But first, just a review of what Fegley is. Fegley is your federal employee group Life Insurance. If you recall, everybody's lumped together, right? Because this is a group plan, whether you're male, female, healthy or sick, smoker or non smoker, everybody is lumped together within this plan. It's administered by MetLife. If you're familiar with Snoopy and the blimp, MetLife administers your Fegley program. That's who's under contract with OPM. And there are three optional coverages available to you on top of your basic life insurance. Now, if you need to go back and get a refresher on federally as a whole, please check out our previous episode when we talked about the do's and don'ts. But today we're going to be discussing one of those optional coverages and a little bit further detail and show you why a replacement or the alternative might be right for you, your family and your situation.
Val Majewski:
So let's dive into option B if you're not familiar again with what option B is, it's also known as additional optional insurance. It's one of these optional coverages that you may have elected when you first got hired filling out your paperwork. And if you have not made any changes from the day you get hired, you're fair. Elections are exactly the same today as they were back then. Now, option B specifically, this is one where you can get up to five times your salary in additional life insurance benefits. So you would have basic and if you chose option B, you would have additional coverage. On top of that, it is group term insurance. Just like all effectively there are no cash values, it's just all group terms. So it is subject to your employment with the government. If you were to leave service and let's say you didn't retire your group insurance goes with you. It doesn't exist anymore because you're no longer part of the group. After age 35. We'll look at an example here and show you just how premiums increase over time. So if you have option B and when you first get hired, you filled this out because you wanted to get a lot of insurance up to five times your salary. It was super expensive when you first got hired or when you were younger. But I want to show you how those costs change over time and why looking at alternatives would be a great benefit to you, your family, your pocket, your bottom line.
Val Majewski:
So in order to really show you how this works and show you how fairly option B can be a huge benefit, but also it can cost you a ton of money over time. Let's look at an example here. So if you recall from our previous episode, this is that same federal employee, age 43. Let's say they made 97,000 plus dollars per year from the government and let's say this employee chose five times their salary in additional coverage. So we take 97 plus around that, up to 98. Multiply it by five. This person would have 490,000 of additional insurance on top of their basic just from option B. Now, what are we going to look at today? Because not just saying what is it, but I want to share with you what are these costs going to look like over time? You just said, Val, right? If you're asking this question to yourself, Val, you just said costs are going to increase every five years starting at age 35. What does that look like? What type of cost increases are we talking about? Is it a few pennies here and there? Is it a lot of money? Is it dollars? Is it hundreds of dollars? Thousands of dollars? We'll look into that.
Val Majewski:
Are there better opportunities for you? Are there better options available for you, the federal employee, to choose from, which can be more cost effective? We're going to look at an example as well. So for this better employee and you can plug in your own numbers and you can certainly reach out to us, we can run a full analysis for you, show you exactly what you have, what those costs are, and how those costs are going to change over time. Even if you do not know what the optional coverages you have. We can take a look at your leave and earnings statement and we can diagnose what options you chose if you do not recall the elections that you made when you first got hired, or maybe any changes that you made along the way. We look at your leave and earnings statement. Why is that? Because if you're not paying for it, I'm sorry to tell you, you do not have it. I've talked to a lot of federal employees over the years that said, yeah, I've got I've got five times my salary. I took the five times and then we look at the pay stub and find out you don't have any of it. You actually just have basic. So the government is is nice in some ways and gives you a few things for free. They're not going to give you, in this case, 490,000 of life insurance for free.
Val Majewski:
You need to be paying for it. Well, how much are you paying for it? This better employee at age 43 currently pays 1470 a pay period works out to be almost $32 a month. Relatively speaking. That's pretty cheap for 490,000 of term insurance. But as you can see, when they hit every five year benchmark, that cost will increase. So let's look at the column that says biweekly factor. Let's just look at that. Don't even look at the numbers just yet. So at age 40, it's $0.03 per 1000 worth of coverage per pay period. When this person turns 45, it's going to double to $0.06. At age 50, it's going to almost double again to $0.10 at age 55. It's going to almost double again to $0.18 at age 60. This is the largest jump that you see within this option. It's going to more than double at age 60. At age 65, it's going to go up again and so on and so forth. Now, if you're a math person like I am, and you hear the word my cost is going to or the words my cost is going to double, double, almost double, almost double more than double. You can understand how that cost can get up there pretty quickly. Right. But get a little bit of a doubling effect. So you're not going to get a letter in the mail.
Val Majewski:
You're not going to get a birthday card when you turn 60. Congratulations. This is the office of Fegley. Just reaching out, wishing you a happy birthday. Just want to let you know that your cost more than doubled for option B. Again, happy birthday. It's just going to continue to come out of your paycheck. You're not going to get a card. You're not going to get a letter. You're not going to get notified. It's just going to continue to come out of your paycheck. And if you're like most that I talk to you, do not scrutinize your paycheck every two weeks. You want to make sure that the money went direct deposit to your bank account, but you not scrutinize the deductions and recognize what the changes were. Hey, this number was different last time. Why did it go up? Why did it change? So it's just going to continue to come out of your check. So I want to make you aware of how these costs are going to increase. Let's go back to our example here. This guy is paying 1470 a pay period at age 45. It's going to go up to 2940 a pay period at age 50, $49 a pay period, 55. We're starting to get up 8820 a pay period. Now, the biggest jump in age 61, 96, a pay period. Look to the right that's $424 a month for the same coverage.
Val Majewski:
Now, this is all assuming that this person has 490000 hours of coverage the entire time, no pay raises, no increases. It's just remains level the whole time. Obviously, if you get a pay increase, you're going to increase your five times, you're going to increase your costs over time. But all things being level, assuming that this person never made a single penny more than they're making now at age 43, and that's what the cost would look like. Now, you may have gasped. You may have said, I didn't know that. I didn't realize that this was going up like that. What how much is this going to cost me over over time? Well, if you look over the next 20 years, it would cost this person over 37,000 for that coverage. If they kept it for 30 years, it would cost over 111,000 just coming out of their paycheck or their retirement check to keep 490 in coverage. Now, at some point for most federal employees I talked to, this is going to get so expensive that you're going to cancel it anyway. So how long is this term insurance going to last, this group term insurance? Well, it's going to last as long as you can stomach the pay the cost for it. So this is not like an outside term policy that ends after 15, 20 or 30 years. This will end when you can't pay the cost anymore.
Val Majewski:
This will end when you decide you want to cancel it because the costs are so high. Now when that is, I'm not sure. But if you said, okay, I want to cancel it before I turn 60, before that big, big cost, will you know that there's now going to be a finite number that's for this person. That's 17 years from now. So why not look at a policy that's only going to be there for 17 years if you're going to cancel this one? And let's compare to see what the costs are going to be right now. There's not a policy that that we're going to show that just shows 17 years. But let's look at a comparison now of the alternatives that are available to you as a federal employee, as if you were to say, I want to get rid of this option B, I understand now that I can get the same coverage elsewhere for a better cost, right? Because I'm not telling you that you want to go look at an option B replacement or an alternative just to pay more money. You want to look at something that is either going to save you money or be better suited for you or your family in your situation. So there are private life insurance options. Now, I want to just say the difference between the group plan and private plans. The group plan, when you first got hired, you did not have to prove your health.
Val Majewski:
You did not have to answer your health questions. You were automatically accepted when using private insurance. You will have to answer health questions. So we want to make sure that you are healthy enough to get this. Now, relatively speaking, you're in decent health. You should be able to qualify for at least some sort of private option. Now, what are those options, though? What types of plans? We don't have to be a life insurance expert to kind of understand the concepts here. But we're going to talk about term insurance. So comparing your group term insurance with the government to a private term plan outside the government. What about a permanent plan? What if you said, you know what, I don't want my plan to be temporary. I don't want this life insurance just to last for a certain period of time. Like option B, it's going to last as long as I can stomach to pay the premium, I'm going to cancel it. Or like a private term insurance, I want to it's going to last maybe 20 or 30 years. I want this thing to last forever. I don't want it to go away. Well, that's an option. Well, what if you had a combo plan, you had some term insurance, but ultimately it is a permanent plan and it was there to last forever. Let's look at term first.
Val Majewski:
Now, listen, it's easy, right? If you're healthy enough to qualify. This is a no brainer, in my opinion. Again, all of this is my opinion. You can decide for yourself, but let's say I compared the two. You said, Val, what is private insurance? Look like I'm in good health. I can qualify for these things. Well, if you are a 53 year old or sorry, 43 year old male, better than average health. And I just have to separate it because now, frankly, there's no difference between male and female private insurance men. We have a little bit higher cost women. Your rates are lower than ours. So if you're a female in this situation, your savings, your costs are going to be even lower. Your savings will be more, your cost will be lower. But let's look at a 43 year old male, $490,000 worth of coverage, same as option B. And what if this person wanted to pay for it or have it last only 20 years? So it lasts from 43 to 63. The cost be locked in. That's the difference. Now, the cost does not go up every month, every five years. Every so often it is locked in for the duration of the term 20 years. And in this case, this person would save over $25,000 over the course of 20 years compared to paying those rate increases with option B, that's significant.
Val Majewski:
What if you wanted that coverage to last for 30 years, this person would save over $82,000 over the 20 or 3030 year period, over 82,000. Now, what could you do with an extra 82,000 in your pocket or in your paycheck that can go to directly to your bank account. It can go towards retirement, towards your TSP, towards your supplemental retirement account. These are direct savings. So when we talk to federal employees about their benefits, our main goal, we talked about maximizing or optimizing your benefits if you're looking to keep life insurance, and there's a number of reasons why you'd want to do it. Most people I talk to are actually under-insured, so I think it's great you get a significant amount of insurance. But you'd want that to be the most cost effective way to do it, the most efficient way to do it so that there's not more money than has to coming out of your paycheck. Now again, what did I say about being underinsured? The federal government also will only allow you to get up to five times your salary and additional insurance. What if you want more than that? Well, with private insurance, you can select whatever amount you want. That's a good news. You can customize this for you, your family, your situation, and the cost is still locked in and level and would be significantly cheaper if you had to choose the same amount with the government plan.
Val Majewski:
Now, what if you wanted a permanent option? Well, this is not like it's going to last only 20 or 30 years. It's going to be there forever. So if you get this plan in place, no matter what amount you want to put in there, whether it's the whole 490,000 in this example, or you say, you know what, I just want 200,000 and I want it to last forever. So the worst case scenario, something happens to me, my loved ones, my beneficiaries, they they will get this amount no matter what age. I'm not not a danger of it running out. That's a possibility. Now, I will say permanent insurance, if you get a significant amount, is going to cost more than term insurance. Well, but that's just the nature of it. Term insurance is temporary. It's like renting permanent insurance is like owning and it'll build up equity along the way. It builds cash value that you can access and utilize. Or if you surrender the policy cancelled it, you no longer need it. You can get back some of the premiums that you paid because it built up its own equity. But there's also a combo plan. I've had many federal employees that I've talked to say, hey, well, I want I need more insurance today, so I want some term insurance. I want to get a significant amount of that because I know it's cheaper and I need more of it now.
Val Majewski:
But as I go through my working career, I'm not going to need as much, but I still want something there in the end. So I want a combination term and permanent plan. I want something that's going to be a lot more now and cost effective now. But in the end, when that term policy expires in 20 or 30 years, whatever it might be, I want to make sure that I've got a baseline of coverage. Whatever that amount might be. Permanent coverage, something that's going to last forever. So worst case scenario. I live too long. My beneficiaries, my loved ones are going to get a certain amount. Let's look at an example. Now, this is a real life example of real life federal employee couple that I was able to assist. And when we were talking about their option B, they had five times their option B, each of them, both of them are federal employees. And we looked at the cost over time and realized they're going to pay a lot more than they have to. We talked about a comprehensive plan. What exactly do you need this insurance for and what do you want to cover? And they gave me their wish list. Well, they had a mortgage, 30 year mortgage for 370,000. They wanted to make sure that it was covered. Something happened to either one of them.
Val Majewski:
The other that survived is able to pay off the mortgage. Their biggest debt. They also had two young children in the house. So we discussed about providing basically a scholarship for each of their kids if something happened to them during their schooling years. We're covering the kids up to, say, age 25. So up until they turned 25, we wanted to make sure that each of them had 100000 hours of coverage. Right. So if something happened to one of the parents, each child would get $100,000 for their future education costs. So basically, given their kids a college scholarship. Now, in the end, they wanted to make sure that there was at least $100,000 there permanently in each of their plans. So we looked at the different options. We designed a full entire plan. You may be thinking, Wow, that's a lot of stuff in one plan. I bet you it's super expensive. Not really the case. When we ran it all together, they were both in in great health. They were able to get a very competitive rate, get all their wish list taken care of. We checked all the boxes. The coverage started off as a total of 570,000. They were able to pay via payroll deduction. The female in this case was $31 biweekly. The $39 biweekly. This this was locked in, right. The cost was locked in for the duration of their plan.
Val Majewski:
And along the way, it's going to alter and it's going to change and it's going to be there for them throughout the course of their life. Right. So the the term plan, the 570,000 is going to be there in the beginning. And then when those terms are up, all that's going to be left in the end is $100,000 permanent, just like they want it. So they've got more coverage. Now, over time, that coverage amount will change. The price won't change, the coverage amount will change. And they'll walk away with at least $100,000 if they live too long and nothing happens, then obviously the goal is we don't want anything to happen to you, but you want to make sure you're covered and insured in case something does. I can tell you from personal experience, I'm worth a lot more dead than alive, but I don't want something to happen to me. I just know that if something did, my family is going to be well taken care of and it's a cost I'm willing to spend for that protection. So this was custom built it. It's not a one size fits all. This was a custom built plan for this couple and their situation. Yours might be totally different than this, which is OC, but it was custom for them and it was more efficient than them. Each paying for five times their salary and seeing their costs go up every five years.
Val Majewski:
In the end, they're going to be left with nothing because they're going to cancel it and probably just walk away with the free insurance in retirement, which is nowhere near the 100,000 that they each wanted to have when it's all said and done. So looking at Option B, the reason why we harp on Option B is because this cost can exponentially go up over time. This is something that you're not going to get notified about and you probably weren't educated on it. Not your fault. You just probably weren't given all the information when you first got hired and first signed up for this to see how high those costs are going to go up over time. There are more effective and more efficient options available for you and your family, assuming you can qualify health wise. So if you like a comparison, you'd like to see what the cost savings could be over the course of your working career and what options and alternatives are available for you and your family. Reach out to us. Let us do a full analysis of your family. Let us first see what it is you have. So that way you can get peace of mind knowing the benefits that you are currently paying for and you currently have. And if we need to put you in a better situation, make a more effective coverage, more efficient coverage, and save you a ton of money over the course of your working career.
Val Majewski:
We'd be honored and happy to do it. We do that on a daily basis with federal employees, just like you, to make sure that you're set up properly and you're positioned in a way that you are in the most effective position. And going forward, as you move towards retirement, the idea, again, is to maximize your optimize your benefits, not pay any more than you have to. So you can see the review here as to why we want to do this. Massive savings potential is huge and just making sure that you're set up properly. Well, I appreciate you taking the time to join me and really look at the options when it comes to your insurance. Specifically Option B. Again. I can't harp on this enough. If you want a full analysis or an option B comparison, reach out to us. Be happy to run that for you. Show you the cost savings, show you the options available. Just make sure that you're set up properly. Again, my name is Val Majewski. This is the Federal Retirement Show. Be sure to subscribe, like share with all of your colleagues. We really just want to get this information out to you and those you work with because we know it is needed. Thanks again for joining me and we will see you again on the future episode. And.
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