Borrowing From Fegli Life Insurance: Is It Possible?

The Federal Employees' Group Life Insurance (FEGLI) Program is the largest group life insurance program in the world, covering over 4 million federal employees, retirees, and their families. FEGLI is a group term life insurance program that does not accumulate cash value. While you cannot take out a loan against your FEGLI insurance, there are a few ways to get money from your coverage while you are still alive. Firstly, if you are terminally ill and qualify for Living Benefits, you can receive financial assistance. Secondly, you can assign your coverage to an entity willing to pay cash in exchange for ownership of your life insurance. Additionally, if you meet specific criteria, you may be eligible for a loan against your FEGLI policy, known as a Living Benefit Loan, where repayment is handled through the death benefit proceeds.

Eligibility for borrowing against your FEGLI policy

The Federal Employee Group Life Insurance Program (FEGLI) is known for its virtues and limitations. While it is possible to borrow money from your FEGLI policy, there are certain limitations and eligibility criteria that apply.

Firstly, it is important to note that FEGLI is term insurance, which means it has no cash or paid-up value, and you cannot borrow directly from the insurance itself. However, you may be eligible for a loan against your FEGLI policy if you meet certain criteria. This is known as a Living Benefit Loan, and it allows you to access a portion of your life insurance policy's death benefit while you are still alive.

To be eligible for a Living Benefit Loan, you typically need to have a serious illness, such as cancer, or face a significant financial hardship. The loan amount can be up to 50% of your life insurance policy's death benefit, and you can use the funds for any purpose, including medical bills, debt consolidation, or other financial needs. It is important to note that the eligibility criteria may vary, and each case is assessed individually.

Additionally, the amount of life insurance coverage under FEGLI is fixed once a federal employee retires. This can be a limitation as life circumstances may change, and the coverage that was once essential may no longer be needed. However, the policy cannot be cancelled, and the retiree is responsible for continuing to pay the premiums.

Limitations of the Federal Employee Group Life Insurance Program

The Federal Employee Group Life Insurance Program (FEGLI) is the largest group life insurance program in the world, covering over 4 million federal employees, retirees, and their family members. While it is a valuable program, it does have certain limitations that participants should be aware of.

One significant limitation of FEGLI is the fixed nature of the coverage amount after retirement. Life circumstances can lead to changes where a reduction in coverage may be desirable, such as divorce, the passing of a spouse, or children becoming financially independent. However, the policyholder is unable to adjust their coverage downward, resulting in paying for coverage that may no longer be necessary. This can pose financial challenges, especially if the retiree faces serious financial difficulties or medical expenses.

Additionally, FEGLI is a term insurance program, meaning it does not accumulate any cash or paid-up value over time. Consequently, policyholders cannot borrow against their FEGLI insurance, unlike some other insurance policies that allow loans or withdrawals. This lack of flexibility can be a drawback for those seeking to leverage their insurance assets for financial needs.

Furthermore, while FEGLI offers Basic life insurance coverage and three optional insurance choices, the cost structure varies between them. For Basic insurance, the government pays one-third of the premium cost, while the policyholder pays the remaining two-thirds. On the other hand, for Optional insurance, the policyholder bears the full cost, which is also dependent on their age. This cost structure can be a limitation for those on a fixed income or with significant financial obligations.

Despite these limitations, FEGLI does offer valuable life insurance coverage for federal employees and their families. It is important for participants to understand the program's constraints to make informed decisions about their financial planning and explore alternative options if needed.

Criteria for borrowing against your FEGLI policy

The Federal Employee Group Life Insurance Program, or FEGLI, is well-known among federal employees for its virtues and limitations. While it is possible to borrow money against your FEGLI policy, there are certain criteria that must be met.

One significant limitation of FEGLI is the fixed amount of life insurance coverage once a federal employee retires. This can become a burden for retirees who experience life changes, such as divorce or the passing of a spouse, as they are unable to reduce their coverage and are stuck paying for coverage they may no longer need. Additionally, retirees cannot cancel their insurance policy under any circumstances.

Despite these limitations, there is a silver lining. If a policyholder meets certain criteria, they may be eligible for a loan against their FEGLI policy. This loan can be used for any purpose, and no repayments are required during the policyholder's lifetime. The loan is repaid from the proceeds of the death benefit. The extra insurance coverage that might have felt like a burden can now be turned into a positive by determining the possible size of the loan.

To be eligible for a loan against your FEGLI policy, you must have at least $75,000 in life insurance coverage and be diagnosed with cancer or another serious medical condition. It is important to note that FEGLI is term insurance and has no cash value, so you cannot borrow directly from your FEGLI insurance. However, you can work with a licensed consumer lender, such as the Life Credit Company, to receive up to 50% of your life insurance policy's death benefit.

How to change your FEGLI coverage

Federal Employees Group Life Insurance (FEGLI) is a term insurance plan with no cash value, meaning you cannot borrow money from it. However, you can change, reduce, or cancel your FEGLI coverage at any time. Here is how to do it:

• Complete the SF 2817 form: To make any changes to your FEGLI coverage, you must complete the SF 2817 Life Insurance Election form. This form cannot be submitted through Employee Express; you must submit it to the relevant office.
• Submit the form to the appropriate office: The office to which you submit the form depends on your employment status. If you are an employee, submit the form to your human resources office, signing only for the coverage you want to keep. If you are retired, there is no form; instead, you must write a signed letter to the Office of Personnel Management (OPM) Retirement Office, clearly stating the changes you want to make.
• Include all necessary information: Ensure that your letter includes your signature, annuity number (CSA/CSF) or social security number, and your phone number. Send the letter to the OPM Retirement Operations Center at the following address: Office of Personnel Management Retirement Operations Center, P.O. Box 45, Boyers, PA 16017-0045.
• Understand the limitations: Keep in mind that while you can reduce or cancel your coverage at any time, you cannot enrol, increase coverage, or restore cancelled coverage after retiring. Additionally, if you have assigned your life insurance to another person or company, you cannot cancel or reduce your Basic, Option A, or Option B coverage.

Changing FEGLI Coverage Due to a Life Event:

FEGLI qualifying life events include marriage, divorce, the death of your spouse, or acquiring an eligible child. If you experience one of these life events, you have the option to make changes to your FEGLI coverage:

• Submit a Life Insurance Election form: You can elect any coverage the FEGLI program offers by submitting the Life Insurance Election form to your employing agency's human resources office within 60 days after the date of the event.
• Provide proof of the life event: You can submit your election before the event and provide proof of the event to your agency within 60 days after it occurs.
• Explore other options: Your agency may offer online enrollment through an internal human resources portal. Additionally, you can also increase your coverage by taking a physical exam, though there must be at least a one-year gap since you last waived coverage.

The cost of FEGLI insurance

The Federal Employees' Group Life Insurance (FEGLI) Program is the largest group life insurance program in the world, covering over 4 million federal employees and retirees, as well as many of their family members.

Basic Insurance

The Basic insurance cost is shared between the government and the employee. The government pays one-third of the total cost, while the employee pays the remaining two-thirds. The Basic insurance premium is a level rate per thousand dollars of coverage, which means the enrollee premium rates remain the same throughout the coverage period. The rate structure for all enrollees may be adjusted periodically based on claims experience.

The Basic Insurance Amount (BIA) is calculated by taking the enrollee's current salary, rounding it up to the nearest thousand dollars, and adding $2,000. For example, if an enrollee earns $84,500, their coverage would be $87,000. The cost of FEGLI Basic insurance is 15 cents per $1,000 of the BIA. So, for the above example, the bi-weekly cost of coverage would be $13.05.

It is important to note that younger employees under 35 benefit from an additional provision called the Extra Benefit, which doubles the amount of Basic insurance payable at no extra cost. This benefit decreases by 10% each year starting from the enrollee's 36th birthday until it phases out by age 45.

Optional Insurance

In addition to Basic insurance, there are three forms of Optional insurance: Option A, Option B, and Option C. Unlike Basic insurance, enrollment in Optional insurance is not automatic, and employees must actively elect to opt-in. The cost of Optional insurance is paid in full by the employee, and it depends on their age. The older the employee, the higher the cost of Optional insurance.

Retirement Considerations

FEGLI coverage can be continued into retirement, and the retirement benefit is pre-funded by premium costs. After age 65 (or at retirement, if later), some coverage can be continued by retirees at no extra cost. However, if employees wish to maintain a higher level of coverage during retirement, they may need to select a reduction plan and incur additional costs. The default reduction plan, also known as the Free Reduction Plan or 75% reduction plan, results in a quarter of the original coverage amount at no cost. The other options are the 50% Reduction plan and the No Reduction plan, both of which require continued payments at a higher cost to maintain the selected level of coverage.

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