Life Insurance And Retirement: Should You Continue Coverage?

Life insurance is a commonly used tool to protect against potential income and other losses. When it comes to retirement, there are several factors to consider when deciding whether to continue or discontinue life insurance. These factors include the type of life insurance, the need for ongoing coverage, the protection of beneficiaries, the payment of final expenses, the presence of debt, and family situation. It is important to carefully weigh these variables to determine the best course of action for you and your family.

• Haven't converted your life insurance coverage to an individual policy.
• Had life insurance coverage for the 5 years immediately preceding retirement or for the full periods of federal service when coverage was available (if the coverage was for less than 5 years).
• Annuity payments start within 30 days. | | Can you keep optional life insurance after retirement? | Yes, if you meet certain conditions. | | Conditions to keep optional life insurance | - Eligible to continue your basic coverage.
• Had optional life insurance for the 5 years immediately preceding retirement or for the full periods of federal service when coverage was available (if the coverage was for less than 5 years). | | Can you change your life insurance coverage after retirement? | You can cancel or decrease your coverage but you cannot increase it. | | Can you change your life insurance premiums after retirement? | You can reduce your premiums by reducing your coverage. | | Can the eligibility requirements for continuing life insurance coverage be waived? | No. | | What records are needed to establish life insurance coverage in retirement? | Official Personnel Folder containing life insurance election forms (SF-2817) and Designation(s) of Beneficiary (SF-2823). | | How can you make sure life insurance benefits are paid out to designated beneficiaries? | Complete a Designation of Beneficiary (SF-2823) form and send it to the provided address. | | Who will receive life insurance benefits when you die? | If there is no designation of beneficiary, benefits will be paid to: your widow or widower, your children, your parents, your appointed executor or administrator of your estate, your next of kin. | | What happens to basic life insurance after retirement and reaching age 65? | If retired before December 9, 1980, basic life insurance reduced by 2% of the face value each month until it reaches 25% of the face value. If retired on or after December 9, 1980, but before January 1, 1990, you elected a reduction schedule for basic life insurance. After reaching age 65, you pay the same regular Basic premium as active employees until age 65. | | In addition to basic life insurance coverage, what optional coverage is available? | Three options: Option A-Standard ($10,000 at retirement), Option B-Additional (1 to 5 times employee's salary at retirement), Option C-Family (1 to 5 multiples, each multiple equals $5,000). |

Life insurance coverage can be transferred into retirement

Life Insurance Coverage After Retirement

Conditions for Continuing Basic Life Insurance Coverage After Retirement:

• You must be enrolled in basic life insurance under the Federal Employees' Group Life Insurance (FEGLI) program when you retire.
• You cannot have converted your life insurance coverage to an individual policy.
• You must have had life insurance coverage for the 5 years immediately preceding retirement or for the full periods of federal service when coverage was available (if the coverage was for less than 5 years).
• Your annuity payments must start within 30 days.

Conditions for Continuing Optional Life Insurance Coverage After Retirement:

• You must be eligible to continue your basic coverage.
• You must have had optional life insurance coverage for the 5 years immediately preceding retirement or for the full periods of federal service when coverage was available (if the coverage was for less than 5 years).

Important Considerations:

• You can cancel or decrease your coverage at any time, but you cannot increase your coverage after retiring.
• Any reduction or cancellation of coverage after retirement is permanent.
• If you are not eligible to continue coverage, you will be given the opportunity to convert to an individual policy.

Basic Life Insurance Options After Retirement:

As a retiree, you have three options for your basic life insurance:

• 75% Reduction: Before age 65, the cost is $.3250 per $1,000 of Basic Insurance Amount (BIA). After age 65, there is no cost, but the amount of insurance reduces by 2% per month until it reaches a minimum of 25% of the BIA.
• 50% Reduction: Before age 65, the cost is $1.0350 per $1,000 of BIA, and after age 65, it is $.71 per $1,000. The amount of insurance reduces by 1% per month after age 65 until it reaches a minimum of 50% of the BIA.
• No Reduction: Before age 65, the cost is $2.4550 per $1,000 of BIA, and after age 65, it is $2.13 per $1,000. The amount of insurance will remain at 100% of the BIA after age 65, and you will continue to pay premiums for life unless you cancel or elect the 75% reduction.

Optional Life Insurance Options After Retirement:

There are three types of optional life insurance coverage: Option A-Standard, Option B-Additional, and Option C-Family. For each of these options, you can choose between "Full Reduction" and "No Reduction" when you retire.

Option A-Standard:

• The amount of insurance is $10,000 at retirement.
• If you retired before October 30, 1998, your Option A insurance may have been higher.
• The insurance reduces by 2% per month or $200, beginning the second month after your 65th birthday or retirement date, whichever is later, until it reaches 25% of the face value or $2,500.
• Premiums are withheld from your annuity through the end of the month in which you turn 65, unless you elect to cancel this coverage.

Option B-Additional:

• The amount of insurance is one to five times your salary at the time of retirement.
• Annuitants with Option B coverage can choose between "Full Reduction" and "No Reduction" at the time of retirement.
• Shortly before turning 65, annuitants with Option B coverage will be contacted to confirm their reduction election.
• If you elect "Full Reduction," your coverage will reduce by 2% of the face value per month for 50 months, at which point it will end.
• If you elect "No Reduction," the withholding for your coverage will be adjusted based on your age and the number of multiples you choose to retain.

Option C-Family:

• The amount of insurance is one to five multiples, with each multiple equalling $5,000.
• Annuitants with Option C coverage can choose between "Full Reduction" and "No Reduction" at the time of retirement.
• Shortly before turning 65, annuitants with Option C coverage will be contacted to confirm their reduction election.
• If you elect "Full Reduction," your coverage will reduce by 2% of the face value per month for 50 months, at which point it will end.
• If you elect "No Reduction," the withholding for your coverage will be adjusted to reflect the number of multiples you choose to retain.

Additional Considerations:

• You must continue your Basic life insurance in order to keep any of the Optional coverage.
• Unless you choose otherwise, your Basic life insurance will automatically begin to reduce at the end of the month after you turn 65 or retire, whichever is later.
• You will pay the full cost to continue optional insurance coverage.
• If you have questions or need assistance, you can contact the Retirement and Benefits Advisory Services (RABAS) at 202-325-6180 or 1-800-897-8612.

You must continue basic life insurance to keep optional coverage

Life insurance coverage can be transferred into retirement if you have had coverage since the first opportunity to enrol or for five continuous years immediately preceding the date of your retirement. If you wish to keep your optional life insurance coverage after retirement, you must continue your basic life insurance.

Three Options for Retirees

As a retiree, you will have three options for your basic life insurance:

• 75% Reduction: Cost before age 65 = $0.3250 per $1,000 of Basic Insurance Amount (BIA); after age 65 = $0. The amount of your insurance reduces by 2% per month after age 65 to a minimum of 25% of your BIA.
• 50% Reduction: Cost before age 65 = $1.0350 per $1,000 of BIA; after age 65 = $0.71 per $1,000. The amount of your insurance reduces by 1% per month after age 65 to a minimum of 50% of your BIA.
• No Reduction: Cost before age 65 = $2.4550 per $1,000 of BIA; after age 65 = $2.13 per $1,000. The amount of your insurance will equal 100% of your BIA and is retained after age 65.

Eligibility Requirements

To be eligible to keep your basic life insurance and optional coverage after retirement, you must meet the following conditions:

• You're enrolled in basic life insurance under the Federal Employees' Group Life Insurance (FEGLI) program when you retire.
• You haven't converted your life insurance coverage to an individual policy.
• You had life insurance coverage for the 5 years immediately preceding retirement or for the full periods of federal service when coverage was available (if the coverage was for less than 5 years).
• Your annuity payments start within 30 days.

Additional Considerations

If you're retiring under the Minimum Retirement Age (MRA) plus 10 provision of FERS, health care and life insurance coverage are suspended until your annuity starts, even if it is postponed. It's important to note that you cannot increase your coverage after you retire, and any reduction or cancellation of coverage after retirement is permanent. The eligibility requirements for continuing life insurance coverage cannot be waived, and if you are ineligible, you will be given the opportunity to convert to an individual policy.

Life insurance can help cover funeral costs

Life insurance is a commonly used tool to protect against potential income and other losses. There are multiple types of life insurance, and some common ones to use in retirement include term life insurance, whole life insurance, universal life insurance, and burial insurance.

Burial insurance, also known as funeral or final expense insurance, is a type of whole life insurance policy designed to cover funeral, burial, and other end-of-life expenses. The average funeral costs between $7,000 and $12,000, and burial insurance policies typically offer coverage between $5,000 and $40,000.

Burial insurance can also be used at the beneficiary's discretion to pay off debts, including any medical bills, mortgage loans, or credit card bills. Similar to burial insurance, pre-need funeral insurance covers any funeral expenses but is usually paid directly to a funeral home rather than any family members.

If you're retired and no longer working, you probably don't need life insurance. However, if you expect to owe estate taxes, life insurance can cover this bill. You may also want to use life insurance to bequeath a tax-free sum to your beneficiaries or to a charity.

If you have enough savings and have prepaid your funeral while alive, you may not need life insurance after you retire to cover those expenses. However, if you're still paying off debt, continuing life insurance coverage in retirement might be advised. Cash value insurance provides the flexibility to take out a policy loan if you encounter unexpected expenses.

Life insurance in retirement can also be useful if you have a spouse or children. For example, if your spouse would lose a substantial amount of your pension income or other monthly payments upon your death in retirement, life insurance can fill that gap.

In summary, life insurance can help cover funeral costs and other final expenses. It can also provide financial support to your loved ones and help pay off any remaining debt.

You can cancel or decrease life insurance coverage at any time

Life insurance is meant to help your family avoid financial hardship if you die. However, you may find yourself in a situation where you need to cancel or decrease your life insurance coverage. The good news is that you can cancel your life insurance policy at any time. But your cancellation options vary depending on how long you've had the policy, your age, and the type of policy you have.

Cancelling Life Insurance Coverage

If you have immediate regrets about your life insurance policy, you can back out during the "free look" period and receive a full refund. "Free look" periods typically last 10 to 30 days from receiving the policy. Within this period, you can terminate the policy by calling your agent or insurer and following their steps for cancellation.

If you have term life insurance, you can simply stop paying premiums and walk away. You can also cancel your policy and receive a partial refund for any months you've paid in premiums upfront. Note that if you decide to buy life insurance again in the future, your rates will be higher as you will be older and possibly less healthy.

If you have permanent life insurance, you can surrender the policy for its cash value. However, you may be subject to surrender fees, especially in the early years of the policy, which can reduce the amount you receive. You might also be able to exchange your policy for another policy or an annuity tax-free.

Decreasing Life Insurance Coverage

If you still need life insurance but can't afford your premiums, you have a few options to reduce your coverage:

• Switch to paid-up status: If you have a whole life policy, you may be able to use the cash value to pay all your premiums, which will decrease your death benefit.
• Lower your death benefit: You can typically reduce your term or permanent policy's face value to lower premiums.
• Pay with dividends: If your policy is with a mutual company, you may be able to use any dividends earned to pay your premium.
• Use the cash value: If you have a permanent life insurance policy, you might be able to use the policy's cash value to pay premiums, provided you've built up enough.

Cancelling or Decreasing CBP Life Insurance Coverage

If you are an employee of CBP, you can reduce or cancel your Federal Employees' Group Life Insurance (FEGLI) at any time, without waiting for an open season. To do so, submit an SF-2817 form to your human resources office, signing only for the coverage you want to keep. If you are retired, there is no form; you must write a signed letter to the Office of Personnel Management's Retirement Office clearly stating the reduction or cancellation you want to make. Be sure to include your signature, annuity number, and phone number, and send the letter to the Retirement Operations Center in Pennsylvania.

You can keep optional life insurance if eligible for basic coverage

If you are a retired federal employee, you can keep your optional life insurance if you meet the following conditions:

• You are eligible to continue your basic coverage
• You had optional life insurance for the 5 years immediately preceding retirement or for the full periods of federal service when coverage was available (if the coverage was for less than 5 years)

If you are eligible for basic coverage, you can keep your optional life insurance. However, you cannot increase your coverage after you retire. Any reduction or cancellation of coverage after retirement is permanent. If you are not eligible to continue coverage into retirement, you will be given the opportunity to convert to an individual policy.

As a retiree, you will have three options for your basic life insurance:

• 75% Reduction: Cost before age 65 = $.3250 per $1,000 of Basic Insurance Amount (BIA); after age 65 = $0. The amount of your insurance reduces by 2% per month after age 65 to a minimum of 25% of your BIA.
• 50% Reduction: Cost before age 65 = $1.0350 per $1,000 of BIA; after age 65 = $.71 per $1,000. The amount of your insurance reduces by 1% per month after age 65 to a minimum of 50% of your BIA.
• No Reduction: Cost before age 65 = $2.4550 per $1,000 of BIA; after age 65= $2.13 per $1,000. The amount of your insurance will equal 100% of your BIA and is retained after age 65.

You will continue to pay premiums for life unless you cancel or subsequently elect a 75% reduction. You will pay the full cost to continue optional insurance.

Frequently asked questions