As we enter our sixth month of the COVID-19 pandemic, it continues to remind us of two things: one, that none of us is immune to life’s ever-present uncertainties; and two, that there’s nothing more important than family.
Add to this the fact that September is Life Insurance Awareness Month, and it may also serve as a wakeup call to the importance of protecting your family from as much uncertainty as possible with life insurance.
Fortunately, as a federal employee you enjoy automatic access to this protection through your enrollment in FEGLI, but ensuring that your policy keeps up with your needs takes regular reevaluation. And while your early-, mid-, and late-career life stages are good times for this assessment, we all know how quickly, and in many cases unexpectedly, major life events can occur.
With this in mind, here are the top five life changes that should automatically trigger a life insurance revisit – regardless of when they happen.
This is perhaps the most obvious checkpoint on our list. Saying “I do” means that someone else is now legally responsible for your financial obligations if/when you die. In roughly 50% of all marriages, someone is now relying on your income to support your newly-shared household– and vice versa!
It also means that it might be time to increase your coverage and/or enroll your spouse in FEGLI, even if he or she doesn’t work, and begin building your future on a strong financial foundation.
Buying a House
Speaking of foundations, it’s probably no surprise that purchasing your first home likely changes your insurance needs given the long-term financial responsibility that a mortgage represents.
Indeed, the average mortgage in the U.S. recently hit a record high of $354,500 and, given that it takes two incomes to cover most mortgages, the prospect of your grief-stricken spouse or family needing to sell your home is a very real one.
Scarier still, recent data show that 73% of Americans die in debt, with mortgage debt the second most common type (behind credit card balances). On the other hand, significantly downsizing or paying off your mortgage might actually mean that it makes sense for you to scale back your coverage.
But whatever your specific circumstances, it’s safe to say that any change in your monthly mortgage payment or your address merits a policy revisit.
Having Children & Paying for College
Adding a child to your family, whether your first or your fifth, should always be considered in the context of your policy.
The steadily-rising costs of raising a child through adulthood were last reported at $233,610, and the average cost of tuition and fees at public universities and private colleges ranges from $11,260 to $41,426, respectively. This means there’s little doubt that the arrival of each new bundle of joy increases your coverage needs, but figuring out how much may not be as simple as you think given factors such as a stay-at-home parent’s oft-overlooked financial contribution to the home, by some estimates well over $100k/year, financial aid eligibility, etc.
Of course, whether you raise children together or not, it’s a sad reality that 40-50% of marriages end in divorce.
While this means you’ll no longer need to cover a spouse, its effect on your life insurance needs requires careful consideration given that alimony may be involved.
Also, if you do have children (especially college-going ones!), you may need to continue providing them with financial support or want to ensure that they (and not your ex!) are named as beneficiaries on an existing or new policy.
Finally, your retirement (and the lead-up to it) is the last big event that should compel a policy rethink.
For starters, if you and your spouse will both be receiving a pension and/or Social Security check in retirement you should consider if life insurance will be necessary to help supplement its potential loss, and if so, how much.
In more nuanced territory, selecting a minimal option for the survivor benefit of a pension and using the savings to purchase a life insurance policy may be a financially-savvy way to maximize your pension as you approach retirement. This strategy is designed to provide your spouse with income equal to or greater than a survivor benefit if you pass away, but also still ensure that a loved one is the recipient of your policy by allowing you to designate another relative as the beneficiary if your spouse dies before you.
Given all this, it’s clear that Feds may want to consider modifying their policy’s size, scope, and beneficiaries at virtually any time. Fortunately, FEGLI allows you to do so through Option A, Option B, or Option C. However, each of these options comes with significant limitations – Option B, for example, carries a coverage maximum below what’s generally recommended for those who have a spouse, a mortgage, or children, while all three options involve a “pass/fail” underwriting process that provides little gray area for those with common medical conditions.
So, what’s the solution?
In many cases, it’s supplementing FEGLI with a more comprehensive policy, or multiple policies, from an outside provider. This can not only allow you to access the higher levels of coverage and stronger family protection that you might already know you need, but also, after discussing your recent or upcoming life changes with a federal benefits expert, reveal the customized, personalized plan that’s truly best for you.
As the Product Manager for the Government Employees’ Benefit Association, Shelly Giuliano is the subject matter expect for insurance products and provides objectivity to the many insurance options federal employees have. She is responsible for researching and evaluating insurance plan features to support the needs of GEBA members and federal employees.