Federal Employees – Do you have too MUCH Life Insurance?

When was the last time you heard that advertised during your favorite cable news program? I’ll bet you a paycheck that nobody has ever run this advertisement during a commercial break from the news .  Most of the ads tout Reverse Mortgages, Mesothelioma, Walk-In Bathtubs, and GOOOOOOOOOOOOOLD!

Even worse, do a web search for “OPM Federal Employee Life Insurance Benefit” and you’re directed to adverts for FEGLI or Life Insurance Salesmen, thinly-disguised as ‘benefits counselors’.

Sorry, back to my regularly scheduled blog.

If you’re a Federal Employee with a few years’ worth of tenure, you’ve already got a lump sum Life Insurance benefit worth ~$75K, plus a possibe a life annuity for your survivors (depending on your time in service).  This is a FERS policy that covers you while you are in the employ of the Federal Government, and it DOES NOT require a fatality to take place on the job or in the workplace (i.e. you don’t need to be a Smoke Jumper for the Forest Service who parachutes directly in to a wood chipper- Your demise could take place away from the workplace and/or outside of working hours as long it is not judged to be ‘misconduct’).

Here’s how to calculate your ‘gratis’ Federal Employee Life Insurance benefit provided by FERS.   While not advertised, the Government actually provides you with Life Insurance benefits in ADDITION to what is offered to you for purchase through FEGLI.  This ‘gratis’ FERS Life Insurance benefit includes:

• Most agencies pay an optional “Death Gratuity Payment” of $10K upon death of an employee (see FERS Handbook ch 70, page 75).

In addition, FERS Life Insurance Pays your surviving beneficiaries:

(Employees w/ 18 mo. to 10 yrs of CIVILIAN service):

1.  Lump sum payment of $29K, PLUS
2.  Lump sum of GREATER of (a) 50% salary or (b) 50% x High-3 Average Salary.

(Employees w/ > 10 years CIVILIAN service):

1.  The two-part benefit listed above, PLUS
2.  50% of what your FERS annuity would be based on your years of service (i.e. years of service x ‘High-3’ Average Salary x 50%).

Know this:

• The above benefit goes away when you retire or resign from Federal Employment- Benefits for survivors in retirement are covered by your applicable FERS annuity/FERS survivor annuity.

Action Plan for you and your Survivors (“Eye of the Tiger, Rocky.  Eye of the Tiger”):

1.  Check your Service Computation Date (SCD Civilian) to verify which FERS Life Insurance Formula above applies to you.
2.  Now that you know your FERS Life Insurance benefit, subtract this value from whatever you have determined to be your ‘Top Line’ dollar requirement for Life Insurance coverage.  If the FERS Life Insurance benefit calculation above appears to be a Windfall, consider reducing your 3rd-party Life Insurance Coverage.
3.  Shop your 3rd-party supplemental life insurance policy with a reputable outfit like FEGLI, USAA, or Navy Mutual Aid Association.
4.  Life/Estate Planning-  Make sure you have current Beneficiary designations (i.e. Spouse PRIMARY, ‘All my Children’ CONTINGENCY) on the following forms:
   •  SF 3102, FERS retirement (also covers death while in-service)
   •  SF 2823 – FEGLI (if participating in FEGLI).
   •  TSP-3 – TSP Beneficiary designation.
   •  SF 1152 – Unpaid Compensation (Lump sum Payout of Annual Leave and Unpaid Salary upon death in-service).

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