Your twenties and thirties can be a pivotal time in both your career and your life.
For many, it’s a time of searching for and pursuing a stable career. For others, it’s still all about experiencing new things and seeing as many new places as possible. But for Federal employees, who enjoy greater job stability and benefit options than much of the civilian population, it’s likely a time when life’s priorities are coming into greater focus.
Members of this early-career cohort may be experiencing new life events and assuming new responsibilities such as taking on a mortgage, beginning to pay off student debt, or funding a child’s education. And with these events comes the need to protect the long-term financial responsibilities that they represent – especially given the fact that 35% of families would be financially impacted within just one month of an unexpected death.
Fortunately, life insurance exists to provide this protection, and federal employees have automatic access to it through FEGLI.
But the true value of your coverage hinges on whether or not you have an appropriate amount of it, begging the question: does FEGLI have you covered?
- Now that two incomes are a necessity for many families, it’s likely critical that you cover both your income and the income of your partner/spouse.
- People who only possess group term life insurance through their employer have an average coverage shortfall of $225,000.**
- Basic FEGLI is a group term policy that automatically covers you unless you opt out. Basic coverage is the only component of FEGLI that is government subsidized, and your Basic Insurance Amount (BIA) is equal to the greater of (a) your annual rate of basic pay rounded up to the next even $1,000 plus $2,000, or (b) $10,000. Basic insurance also provides an Extra Benefit that doubles the amount of Basic insurance payable if you die when you are age 35 or younger.
- Option A, Option B and Option C allow you to increase coverage or enroll your spouse or dependent child at any time, but you only have a small window of time when you can do so without undergoing underwriting.
Given this, it’s essential to assess your needs, your coverage, and your options.
Know Your Options
While FEGLI is an incredibly convenient way to protect your loved ones, it may not be the most complete way.
For while FEGLI does allow for automatic enrollment and protection against acts of war and terrorism, it lacks many features that may be important to you. Among them: flexibility, portability, strong family protection, and cost savings for above-average health.
With these features in mind, alternatives may better serve your needs because:
- As with most employer insurance programs, your amount of coverage under FEGLI is based upon your salary level – alternative plans offer the flexibility to select a plan with higher levels of coverage regardless of salary.
- You cannot take your FEGLI policy with you when you leave or resign from the federal government, so you will need to restart your insurance coverage if/when you join a new employer. Alternative policies “go with you,” allowing you to maintain your coverage regardless of your employer and as long as you continue to pay your premiums.
- As a group plan, FEGLI’s premiums do not depend upon your level of health. As such, those in good health – aka many folks in their 20s and 30s – may be missing out on the potential cost savings that alternative plans may offer.
- FEGLI offers limited levels of family protection at a time when dual income is not a luxury, but a necessity, for many households. It’s essential to consider what life would look like if a spouse or domestic partner passes away. In addition to the obvious financial responsibilities, such as the mortgage and utility bills, new long-term costs may be introduced, such as those for childcare or house cleaning. The survivor suddenly becomes responsible for it all, so it’s well worth the time and potential discomfort to calculate the full impact of a spouse’s death and give yourself a reality check on just how much income you really need to meet your current and future responsibilities. Once that’s done, you may want to look for plans that cover your spouse/domestic partner and even check for dependent child coverage.
Planning for the Future
When considering all of the above, it’s crucial to recognize and remember that your life and your needs can change quickly, whether that means having big new bills to pay or a sudden need to pay them without your partner.
This is especially true in your early career and, as with most things, it’s never too early to review your financial situation, your potential sources of risk, and what makes the most sense for you and your family with a trusted expert who understands the many nuances of the federal benefits space.
Michele Rackey has served as the Executive Director of the Government Employees’ Benefit Association, a nonprofit employee benefit association, for 13 years. In her role, she provides strategic leadership and business oversight to the Association. Michele has over 36 years of experience in financial services.