Edward A. Zurndorfer–
Upon entering federal service as a full-time or part-time permanent employee, an individual has the option of joining the federal government-sponsored group term life insurance program called the Federal Employee Group Life Insurance (FEGLI) program. In the first of two FEDZONE columns explaining how FEGLI works including its cost to employees, this column explains the different parts to FEGLI and specific elections that enrollees must make.
FEGLI “Basic Insurance”
Upon entering federal service, a full-time or part-time employee is automatically enrolled (without having to furnish evidence of medical insurability) in “Basic” insurance. “Basic” insurance covers the employee’s life for whatever is greater: (1) the employee’s annual pay, as shown on the employee’s SF 50- Notice of Personnel Action; or (2) $10,000.
This is called the Basic Insurance Amount, or BIA. The federal government pays one-third of the premium cost for the BIA and the employee pays the other two-thirds. Specifically, the federal government pays 7.5 cents per $1,000 of BIA coverage per pay date and the employee pays 15 cents per $1,000 of coverage per pay date of BIA coverage. The following example illustrates:
Joan is hired as a full-time permanent employee. Her starting salary is $67,500 as shown on her SF 50. Her BIA is $67,500 rounded up to the next $1,000 ($68,000) plus $2,000 which equals $70,000. The cost to Joan is 70 (number of $1,000 of coverage) times $0.15 equals $10.50 per pay date. With 26 pay dates per year, Joan’s annual cost for her BIA coverage is 26 times $10.50, or $273.00.
Extra BIA coverage
Employees who are under age 45 and have BIA coverage automatically have extra coverage without paying any additional premium. This Extra Benefit increases the amount of BIA payable at the time of the employee’s death, if the employee dies before age 45.
To determine the amount of the Extra Benefit, multiply the BIA by the appropriate age multiplication factor as follows:
|Employee’s Age at Death||Age Multiplication Factor|
| 35 or under|
45 and over
| 2.0 |
Example. Joan dies at age 40 with her BIA of $70,000. The age multiplication factor is 1.5. The amount of BIA payable is 1.5 times $70,000, or $105,000.
If an employee elects the FEGLI BIA, then the employee may also elect Optional FEGLI insurance. Unlike FEGLI BIA in which a newly hired employee is automatically enrolled, Optional FEGLI is not automatic. A newly hired employee has 60 days to enroll (once again, without having to furnish evidence of medical insurability). Also, employees pay the full premium cost of Optional FEGLI with the federal government not contributing any portion of the premium cost. An employee must be enrolled in the FEGLI BIA in order to elect any of the optional coverage.
There are three types of Optional insurance: Option A – Standard; Option B – additional, multiple of salary, and Option C – family.
Option A insures the employee’s life for $10,000. Option B insures an employee’s life for 1,2,3,4 or 5 multiples of the employee’s SF 50 salary, rounded up to the next $1,000 plus $1,000. Option C insures the lives of the employee’s spouse and eligible dependent children, until the age of 22. It comes in 1, 2, 3, 4 or 5 multiples of coverage. Each multiple is equal to $5,000 for a spouse and $2,500 for each dependent child.
Accidental Death and Dismemberment Benefits
Accidental death and dismemberment (AD&D) coverage is an automatic part of FEGLI BIA and Option A (if elected) for employees, at no additional cost. There is no AD&D coverage with Option B and C, and there is no AD&D coverage for annuitants or enrollees on workers’ compensation.
Accidental death benefits are payable when a FEGLI enrollee (with BIA) dies and in the course of dying, sustains injuries by accidental means and dies from these injuries within one year of the accident. Under BIA, accidental death benefits are paid in addition to BIA and are equal to the employee’s BIA. Under Option A, accidental death benefits are paid in addition to Option A and are equal to Option A coverage.
Accidental dismemberment benefits are payable when a FEGLI enrollee with BIA sustains injuries by accidental means and within one year afterward, loses a limb or sight in one or both eyes as a result of the initial injuries. Under BIA, accidental dismemberment benefits are paid in addition to BIA and are equal to one-half of one’s BIA for the loss of one limb or sight in one eye. Under Option A, accidental dismemberment benefits in addition to Option A and are equal to one-half of one’s Option A coverage for the loss of one limb or sight in one eye.
Unless an employee’s position is excluded from FEGLI coverage by law or regulation, an employee is automatically enrolled in FEGLI BIA. If an employee does not want FEGLI BIA, then the employee can either waive it upon entering federal service or cancel it at a later date. Optional insurance is not automatic; an employee must specifically elect the types of optional insurance he or she wants within 60 days of becoming eligible.
Effective Date of FEGLI Insurance
The FEGLI BIA coverage is effective on the first day an employee is in a pay and duty status in an eligible position. Option A and Option B FEGLI insurance coverages are effective on the first day an employee is in a pay and duty status or the employee’s employing office receives the employee’s election to have Option A and/or Option B FEGLI insurance. If the employee is not in a pay and duty status on the date the employing office receives the election, the coverage becomes effective the next date the employee is in a pay and duty status. Option C coverage is effective on the day the employee’s employing office receives the employee’s election without regard to pay and duty status.
Waiver/Cancellation of Insurance
When an employee becomes eligible for the FEGLI (usually upon entering federal service), the employee must specifically waive the FEGLI BIA if the employee chooses not to have it. If an employee does not want Optional insurance, then the employee does not have to do anything. Any type of FEGLI Optional insurance (Option A, Option B or Option C) not elected is automatically waived.
FEGLI BIA and/or Optional insurance may be canceled at any time unless an employee has “assigned” (someone else owns it, to be explained in the next column) his or her FEGLI insurance. Canceling any type of Optional insurance does not affect BIA insurance.
The cancellation is effective on the last day of the pay period in which an employee files a cancellation request with his or her employing office. The cancellation request should not be filed with OPM as OPM does not have records for employees.
Cancellation of Waiver by Providing Medical Information
An employee may cancel his or her FEGLI waiver and obtain BIA and for Options A and B if at least one year has passed since the effective date of the employee’s FEGLI waiver and the employee provides satisfactory medical information at the employee’s own expense. Note that an employee must have BIA in order to elect any part of Optional insurance.
Employees who want to cancel a waiver must be eligible for FEGLI and the employee must complete Form SF 2822 (Request for Insurance). The employee’s agency will first complete part of the form. The employee then fills out the employee’s section of the form. A physician or other medical professional will examine the employee and complete the rest of Form SF 2822.
Cancellation of Waiver Due to a Life Event
An employee may cancel a previous waiver and elect any FEGLI coverage including BIA, Option A, Option B and Option C, based on a FEGLI qualifying life event. FEGLI qualifying life events (change in family status) include: (1) marriage; (2) divorce; (3) death of a spouse; or (4) acquiring an eligible child.
An employee must file the election to enroll in FEGLI due to a life event with the employee’s employing office using Form SF 2817 (Life Insurance Election), or its electronic equivalent, along with proof of the event. The form and proof must be filed from 31 days before to 60 days after the change in family status.
Unlike the Federal Employees Health Benefits (FEHB) program in which there is an annual “open season” at which time employees can enroll or change their FEHB coverage, there are no regularly scheduled FEGLI “open season” at which time eligible employees can elect increase or change coverage. FEGLI. “Open seasons” are held only when specifically scheduled by OPM. For example, the last FEGLI “open season” was held in September 2016; the one previous to that was held in September 2004; the one previous to that was held in 1999 and the one previous to that was held in 1992.
Note that an employee does not have to wait for an “open season” to reduce or cancel FEGLI coverage. An employee can do so at any time using Form SF 2817, unless the employee assigned his or her FEGLI coverage.
An employee’s FEGLI coverage continues during the first 12 months in nonpay status. No premium payments are required unless the employee is receiving benefits from the Office of Workers’ Compensation Programs (OWCP). At the end of the 12-month nonpay status period, the employee’s FEGLI coverage terminates, with a 31-day extension of coverage and right to convert to an individual policy.
Employees who separate from service to enter the military are considered to be in a nonpay status for FEGLI purposes. As long as the separated employee has reemployment rights under the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA), the separated employee can keep his or her FEGLI coverage for up to 24 months in nonpay status, or until 90 days after the military service ends, whichever is earlier. Coverage is free for the first 12 months. But the separated employee must pay both the employee and agency contributions of premiums for their BIA and continue to pay the entire cost of any Optional insurance they may have for the second 12 months of coverage.
Termination of FEGLI
An employee’s FEGLI coverage ceases when the employee: (1) cancels it; (2) separates from federal service; (3) completes 12 months of nonpay status; (4) moves to a position that is excluded from FEGLI coverage; (5) retires and is not eligible to continue FEGLI coverage into retirement; (6) compensation ceases, or when OWCP finds that the employee is able to return to duty; or (7) dies.
31-Day Extension of Coverage and Conversion of Insurance
When an employee’s FEGLI insurance (BIA, Options A and B) terminates (except by waiver or cancellation) the employee’s FEGLI insurance automatically continues without cost for another 31 days. The employee is entitled to convert the FEGLI coverage to an individual whole life insurance policy. The employee may convert all or any part of the BIA and Options A and B coverages. No medical examination is required, although the employee may be asked a few questions about his or her health in order to determine if the employee qualifies for a lower premium. Note that employees do not have to answer these questions, but if the employee does not then the employee may pay a higher premium than necessary.
The employee, or the assignee if the employee assigned his or her FEGLI insurance, must request conversion information within 31 days of the date on the conversion notice the employee receives from the employee’s employing agency, or within 60 days after the terminating event, whichever is sooner. Regardless of the date, the employee purchases the conversion policy. The conversion is effective and premiums begin at the end of the 31-day extension of coverage. The following example illustrates:
Peter separated from his agency on May 28, 2019. Peter later contacts his agency to tell them he needs a conversion notice. His agency issues the conversion notice to him on July 8, 2019. His conversion request must be received by the Office of FEGLI (OFEGLI) by July 27, 2019 (which is 60 days after May 28, 2019) since this is the last date he can make this request.
For those employees who are unable to convert to an individual policy, a person having a power of attorney for the employee may convert the employee’s FEGLI coverage to an individual policy on behalf of the employee. If the employee has assigned his or her FEGLI coverage, the assignee is entitled to convert BIA Option A and Option B coverages. Family members, such as spouses and dependent children under the age of 22, are entitled to convert the employee’s Option C coverage if the employee was enrolled in Option C.
The assignment of FEGLI coverage will be discussed in the next FEDZONE column.
Edward A. Zurndorfer is a Certified Financial Planner, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, located at 833 Bromley Street Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While the employees of Serving Those Who Serve are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.