Life insurance in retirement


Considering how many employees retired during 2015, and especially at the end of the year, I thought it would be a good idea to go over the effect of retirement on your Federal Employees’ Group Life Insurance.


You’d be entitled to that coverage if you were enrolled in the FEGLI program for the five consecutive years of service immediately before you retired or, if you are a FERS employee who is postponing the receipt of your annuity to avoid the 5 percent per year age penalty, the five years immediately before you separated from the service.


Basic Insurance


Most of you were automatically covered for basic insurance when you were first hired, unless you waived that coverage. Basic insurance is term insurance, which is equal to your base salary rounded up to the next $1,000 plus $2,000. The government pays two-thirds of the premiums and you pay the other third.


When you retired, you were offered three choices: a 75 percent reduction in your basic insurance, a 50 percent reduction, or no reduction. If you chose the 75 percent reduction, you will continue to pay the same premiums for that insurance that you did while an employee, and you’ll do so until age 65. At the point, the value of your basic insurance will decline at a rate of 2 percent per month until it reaches 25 percent of its face value. You won’t pay any premiums for that insurance after age 65.


If you chose the 50 percent reduction, it will begin reducing at a rate of 1 percent per month until it reaches 50 percent of its face value. For that enhanced benefit, you will pay a higher premium until age 65 ($1.035 per month per $1,000 of coverage) and a lower one – 71 cents – thereafter. If you chose no reduction, you will pay $2.455 per month per $1,000 of coverage until age 65, and $2.13 thereafter.


Option A – Standard Insurance


Option A was created decades ago when a dollar was actually worth a dollar. It allows any employee who already has basic insurance to buy an additional $10,000 coverage at his own expense. While the premium rates are modest for younger employees, they increase at five years intervals until they reach a plateau at age 60. It was up to you to decide if you wanted Option A and, if you were still carrying it, whether you wanted to carry it into retirement.


At ages 50 through 54, the premium rate for Option A is $2.30 per month; ages 55 through 59 it’s $4.39; and for those ages 60 to 65, it’s a hefty $13. Premium deductions stop at the end of the calendar month in which you reach your 65th birthday (or your retirement if that’s later). At that point, Option A insurance will automatically begin declining by 2 percent per month until it reaches 25 percent of its face value.


Option B – Additional


Option B allows employees to elect an amount equal to one, two, three, four or five times their annual basic pay, after rounding it up to the next $1,000. At retirement, you were offered the opportunity to retain the coverage you had as an employee. If you did, you’ll pay the full cost of that coverage, just as you did before you retired. However, the premiums will continue to rise as you grow older. For example, for those ages 50 through 54, the monthly premiums are $0.238 for every $1,000 of coverage; 55 through 59, $0.433; 60 through 64, $0.953. The coverage is free from age 65 on, if you elected to have that coverage decline at a rate of 2 percent per month for 50 months until it reaches zero.


However, if you elected to continue your Option B coverage at the level you had as an employee or reduced the number of multiples, the monthly premium rates for each $1,000 of coverage would be $1.343 from age 65 to 69; $2.47 from 70 to 74; $3.90 from 75-79, and $5.20 for age 80 and over.


Option C – Family


Option C allowed you to provide coverage for your spouse and eligible dependent children under one policy. The entire cost of premiums was paid by you. If you elected Option C, it automatically covered all eligible family members. Just as with Option B, you could elect up to five multiples of coverage, with each multiple equaling $5,000 for your spouse and $2,500 for each of your children.


The premium cost per multiple is a function of your age. At ages 50 through 54, it is $1.99 per multiple; 55 through 59, $3.21; 60 through 64, $5.85; 65+ free, if you elected to have that coverage decline at a rate of 2 percent per month for 50 months until it reaches zero.


Your choices here were the same as those for Option B: continue to keep the full coverage you had when you were employed or reduce the number of multiples. In either case, the premiums would continue to rise. At ages 65 to 69, they’d be $6.80 for every $1,000 of coverage; 70 to 74, $8.30; 75 to 79, $11.40; and 80+, $15.60.


A final word


Unless you have assigned your insurance to someone else, you may cancel it at any time. However, if you cancel your basic life insurance, that action will automatically cancel all your optional insurance as well. On the other hand, if you elected 50 percent or no reduction coverage for your basic life insurance, you may cancel this at any time without affecting your Optional insurance coverage. Similarly, Options A, B or C insurance may be canceled (and Options B or C reduced) at any time.





About Author

Reg Jones was head of retirement and insurance policy at the Office of Personnel Management. Email your retirement-related questions to

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