Posted on Friday, 19th August 2016 by Dennis DampPrint This Post
FEGLI Open Season is fast approaching and two of my articles titled FEGLI Open Season, Long Term Care, and Lifestyle Updates and 2016 FEGLI Open Season – Take Advantage of this Opportunity should provide the information you need to make informed decisions. Generally you need coverage for final expenses and additional coverage if your savings and spouse’s retirement income is insufficient for them to live comfortably. You may also require additional insurance coverage for other special situations.
The FEGLI Open Season provides an exceptional opportunity for active federal employees to sign up for additional coverage without a physical or provide proof of insurance. Also, most federal employees are so involved with their daily lives many will ignore the FEGLI Open Season. Down the road they may regret not taking advantage of this opportunity. If you are a smoker, in poor health including having high blood pressure, or have other health problems consider your options and take advantage of this opportunity. Also, consider your family history. Even if you are healthy now, if your family has a history of disease or major medical issues it may be the only option you will have to expand coverage.
- Please forward this to others in your organizations to make them aware of just how important this open season can be for many. Encourage others to look closely at their options.
When I retired in 2005 I left with Basic coverage and elected the 75% reduction. When I turned 65 my premiums stopped and my insurance coverage deceased 75%. The insurance amount stays constant for the remainder of my life and I don’t pay any premiums now. I also have a private sector whole life insurance policy that I took out in 1973 that supplements my Basic FEGLI insurance. It too was paid up at age 65. However, I elected to continue paying premiums because the insurance company pays 4% interest on the accumulated earned interest amount which continues to grow.
If you need insurance for your spouse take advantage of Option C Family coverage. Active federal employees can either add or increase coverage (in multiples of $5,000) during open season and the premiums aren’t excessive although they do increase with age. For example if you now carry a multiple of 3 for your spouse, $15,000 in coverage, it will only cost you $3.21 per $5,000 in coverage monthly between ages of 55-59, or $9.63 a month. To increase to $25,000 you would pay an additional $6.42 a month for a total of $16.05 a month. The rate tops out at 80+ and that same coverage for $25,000 would cost you $78 per month. If you spouse has health issues and uninsurable in the private sector this is a no brainer.
Part B coverage is another matter. When retiring the employee elects either a full reduction benefit or no reduction. The full reduction multiple coverage stays in force until age 65. At age 65 the premiums stop and your coverage reduces 2% a month for 50 months when coverage ends. It’s the no reduction premiums that often eat your lunch as they say.
The relatively low premium cost of Part B multiple coverage at a young age lulls many feds into a false sense of security. The vast majority don’t realize that costs increase, and dramatically, at age 60 when the monthly premium more than doubles from .433 cents per thousand to .953 cents. If you were carrying $350,000 in multiple coverage at age 40 it only costs you .087 cents per month for a total premium of $30.45. That same coverage at 60 would be $333.55, at age 80+ $2,002 a month!
Since the premiums come out of your pay check most don’t even realize the increase until the premiums start to double and triple. That’s when they look at their pay statement and realize the premiums have skyrocketed. By that time they are older and the cost of replacement coverage has increased and they may not be insurable due to illness. One of our readers in his late 70s was paying over $10,000 a year for his Part B multiples and was struggling to make ends meet, plus he stated that he wouldn’t be able to afford the insurance when he turns 80, especially with the new premium increases taking effect in January. He was sorry he didn’t look at lower cost options before he retired. It should be noted that premiums are subject to change. View the FEGLI employee rate charts for the new rates.
From my perspective Option B multiples premiums are so low when you are young it makes sense to have them. I carried 5 multiples when my children were still home and in school and dropped to 3 for a time after that. If you decide you need this coverage, while you are still insurable, it makes sense to do some price comparisons with private insurance companies. I found the site www.fegli.org easy to use and it provides multiple quotes by state from major insurers like MetLife, Prudential, and others. You might want to do some price comparisons to see how much you could save on Part B multiple coverage. There are other companies that provide price comparisons as well, check around to find the best fit for your needs.
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Disclaimer: Opinions expressed herein by the author are not an investment or benefit recommendation and are not meant to be relied upon in investment or benefit decisions. The author is not acting in an investment, tax, legal, benefit, or any other advisory capacity. This is not an investment or benefit research report. The author’s opinions expressed herein address only select aspects of various federal benefits and potential investment in securities of the TSP and companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that retirees, potential and existing investors conduct thorough investment and benefit research of their own, including detailed review of OPM guidance for benefit issues and for investments the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material.