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Federal Employees News Digest : Oct. 22, 2012
October 22, 2012 Vol. 62, No. 15 7 Visit us on the Internet at www.FederalDaily.com This last of four columns on federal employees and life insurance examines the cost of the federal government's sponsored group term life insurance program, the Federal Employees Group Life Insurance program, or FEGLI. This week's column discusses the premium cost to employees who participate in the FEGLI program, discusses which employees may benefit by opting out of the FEGLI program and purchase a level term life insurance policy from a private insurance company, and examines the premium cost of FEGLI if an employee decides to keep full FEGLI coverage in retirement. As discussed in a previous column, FEGLI con- sists of the "basic life insurance" (BIA) and three separate optional coverages. The federal govern- ment pays one-third of the premium for the BIA and employees pay the other two-thirds. Employees pay the full premium cost of any optional coverage they elect. The BIA is an employee's annual gross salary (as shown on their SF 50 - Notice of Personnel Action) rounded up to the next $1,000, plus $2,000. The cost of the BIA to the employee is $0.15 per $1,000 of coverage per biweekly pay date, or $0.325 per $1,000 of coverage per month. The following example illustrates. Joan, a federal employee, has an annual salary of $97,350. Her BIA is $98,000 plus $2,000, or $100,000. She pays 0.325 times 100, or $32.50 per month. The annual cost is 12 months times $32.50 per month, or $390 per year. Note that the cost of the BIA increases as an employee's salary increases. Option A (standard) is an additional coverage of $10,000. The biweekly cost to employees depends on the age of the employee; it ranges from $0.30 biweekly for employ- ees younger than age 35 to $6.00 biweekly to employees or annuitants age 60 and older. On an annual basis, the cost of Option A ranges from $7.80 to $156.00. Option B (additional coverage equal to multiples of one, two, three, four or five times an employee's annual salary) is priced according to an employee's age. The table at right summarizes the cost of Option B. In the example above, if Joan elects Option B with multiples of her annual salary---five times $97,350, or $486,750 rounded to $487,000---then the premium cost to Joan each pay date is 487 times $0.05 or $24.35. This means an annual cost of 26 (pay dates) times $24.35, or $633. Assuming Joan's salary does not change over the next 10 years, when she reaches age 50 the annual cost will be $1,646. By the time she becomes age 60, the annual cost will increase to $6,584. Since Option C is for life coverage for family members, it is not discussed here. With respect to FEGLI premium costs for employees, one thing is for certain: As an employee becomes older and earns a higher salary, the cost of FEGLI becomes more expensive. FEGLI is probably less expen- sive than a term life insurance policy that can be purchased from a private insurance company for employees who are younger than age 40. For employees ages 35 to 40 who are in reasonably good health and who could qualify for preferred rates, looking into purchasing a level term life policy makes sense. The employee would have to provide evidence of good health through a medical exam and/or have the insurance company check the employee's medical records. Employees who are not in good health and who could not qualify for a level term policy should therefore stay with FEGLI. Unfortunately, many federal employees either "take the easy road" and stay with FEGLI because of the automatic enrollment feature or never get around to checking into an individual life policy. As is explained below, the cost of FEGLI coverage sky- rockets for those who desire to keep their full FEGLI coverage in retirement. For an employee to keep his or her FEGLI coverage in retire- ment, the employee must be eligible to retire on an early or immediate retirement. The employee must have been enrolled in the FEGLI program for at least the five years preceding their retirement date. An eligible employee who chooses to keep the full BIA during retirement will pay $2.265 per $1,000 of coverage per month dur- ing retirement compared to $0.325 per thousand of coverage per month while employed. This is an increase of 700 per- cent; for many annuitants this cost becomes unaffordable. The alternative is to reduce their FEGLI coverage at the time of retire- ment. Depending on the amount of reduc- tion, the cost of the BIA will be reduced or eliminated. Keeping full Option B coverage in retirement also becomes more expensive. All employees are encouraged to evaluate their life insurance needs and costs in order to determine if they have the appropriate amount of coverage at the most reasonable cost. If necessary, employees should contact a life insurance broker to assist them. Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in Silver Spring, MD. He is also a registered representative with FSC Securities Corporation, branch address: 833 Bromley St. - Suite A, Silver Spring, MD 20902. Phone: (301) 681-1652. Securities offered through FSC Securities Corporation,member FINRA/SIPC. EZ Accounting and Financial Services and FSC are independent companies. Informed Investor Evaluating life insurance needs and coverage: Part IV Age Group Employee's Biweekly Pay Day Cost of Option B Per $1,000 Coverage Under Age 35 $0.02 35-39 0.03 40-44 0.05 45-49 0.08 50-54 0.13 55-59 0.23 60-64 0.52 65-69 0.62 70-74 1.14 75-79 1.80 80+ 2.40
Oct. 15, 2012
Oct. 29, 2012