Posted on Friday, 20th June 2014 by

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My last column discussed Basic FEGLI coverage and how to evaluate your insurance needs. This article will discuss options A, B, and C and part 3 of this series will discuss changes you may wish to make with certain life events.  If you are approaching retirement print these articles to help you decide on options when you fill out your retirement forms.  You can only elect FEGLI optional insurance when you are first employed, after an authorized life event, or during one of the rare open seasons that OPM schedules. Basic FEGLI coverage is automatic when you are first selected for federal employment.

Part A Standard coverage is a flat $10,000 with an additional $10,000 accidental death coverage if you are under 45. The premiums increase with age however they are relatively low.  Most who elect Option A keep it in retirement because at age 65 it’s free like Basic coverage.  The maximum cost for an annuitant under age 65 is currently $13 a month.  At age 65 the insurance reduces 2 percent a month until the coverage decreases to $2,500. 

Part B increases you insurance coverage by multiples of your salary, from 1 to 5, and the FEGLI Part B premiums  increase dramatically with age. This coverage becomes very expensive in retirement and many approaching retirement either drop, reduce their multiples, or seek lower cost private term insurance if needed.  The younger you are when applying for term coverage the lower your premiums  so it makes sense to look for Part B alternatives long before you retire.  In Part 1 of this series Larry, a federal retiree, was facing Part B premiums of $10,000 a year to retain his 5 multiples at age 65. That same coverage would have increased to $20,000 a year at age 70! Not many retirees on a fixed income can afford to pay high premiums like this.  If you assessed your insurance needs and decide to retain significant  insurance coverage in retirement it may be beneficial to look for lower cost alternatives.  

You may not have the option to convert your coverage to a private insurer if you have preexisting medical conditions. In this case many are trapped into keeping high cost multiples. Don’t let this happen to you. If you determine you need to maintain Part B coverage after a thorough needs assessment seek out alternatives early, long before you retire.  Whenever I look for insurance coverage or contractor services I always obtain multiple bids from reputable companies. It’s important to read the fine print before sighing any contract.

I was looking for lower cost home owners insurance recently and did find one company that offered coverage at half of what I was paying. After a thorough review of the low bidders proposal I discovered that many things were not covered, such as sewer back up and water damage from broken pipes, and I kept my current coverage . However, before signing up again with the same company I reviewed the policy online with customer service and determined that they had misclassified  our home.  We ended up getting a $500 rebate and a significant premium reduction.  It pays to question companies when things don’t seem quite right.    

Part C is family and dependent coverage and you can elect up to 5 multiples as well.Family coverage includes $5,000 for a spouse and $2,500 for each child under age 22 in your household. You can elect up to 5 multiples and the premiums adjust as you age. When you retire you can elect either a full reduction benefit or no reduction.

If you elect full reduction your multiple coverage will stay in force until you reach age 65. At age 65 the premiums stop and your coverage reduces 2% a month for 50 months when coverage ends. The premium costs per multiple ranges from 48 cents per multiple at age 35 to $14.30 per multiple from age 80 and up. If you don’t have private insurance for your spouse this coverage will fill the gap. Three multiples would cost a person between the ages of 60 to 64 $17.55 a month ($5.85 per multiple) for $15,000 in coverage. From 65 to 69 the cost increases to $20.40. 

Final Thoughts

After retirement you can’t increase coverage, you can only reduce your coverage. If you remotely think you or your spouse will need insurance it’s best to elect that coverage now and if you run into a bind down the road you can always reduce multiples or certain options altogether if desired. If you do decided to obtain quotes from private insurance companies for Part B alternatives consider keeping your Basic, Part A and C options. They may try to talk you into dropping all of your FEGLI coverage and they can be convincing. From my perspective the FEGLI insurance costs for Basic, A, and C are reasonable and depending on what you elect in retirement two of the three are FREE when you reach age 65. They stopped taking premiums out of my annuity in June of this year for my Basic since I elected the 75% reduction when I retired in 2004. I’m now officially 65!

Updates:

For those planning on retiring in 2014 and 2015 now is a good time to evaluate the best dates for you to leave. You have to consider your annual and sick leave balances and so much more.  We have several informative articles available on this subject including a link to Tammy Flanagan’s article titled “Best Date to Retire in 2015.”  Review this information before you settle on a date to maximize your annuity and lump sum payment.

Learn more about your benefitsemployment, and financial planning issues on our site and visit our Blog frequently at http://fedretire.net to read all forum articles.

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The information provided may not cover all aspect of unique or special circumstances, federal regulations, and financial information is subject to change. To ensure the accuracy of this information, contact your benefits coordinator and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice and our articles and replies are time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change. The advice and strategies contained herein may not be suitable for your situation and this service is not affiliated with OPM or any federal entity. You should consult with a financial or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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