Life Insurance Calculation: A Guide For Retired Csrs Employees

The Federal Employees' Group Life Insurance (FEGLI) program offers retirees basic life insurance coverage based on their salary on the day of retirement. To be eligible for this coverage, individuals must meet specific requirements, including being enrolled in FEGLI for the five years preceding retirement or from their earliest opportunity to enroll. Retirees have different options for their basic life insurance coverage, including the 75% reduction, 50% reduction, and no reduction options, each with varying premium costs and coverage amounts. It's important to note that life insurance coverage under FEGLI cannot be reinstated once cancelled in retirement.

Eligibility for continuation of basic life insurance coverage into retirement

To be eligible to continue your Federal Employees Group Life Insurance (FEGLI) Basic Insurance Amount (BIA) coverage into retirement, you must meet the following requirements:

• You are entitled to an immediate annuity, meaning you are eligible to begin receiving retirement benefits within 31 days of your separation from federal service. If you are under the Federal Employees Retirement System (FERS), this means you can re-enroll in FEGLI when you file for your retirement benefit if you separate at your minimum retirement age with at least 10 years of credible service and choose to postpone your application to avoid the age penalty.
• You have been insured for the five years immediately preceding your retirement, or since your first opportunity to enrol. This is known as the "all opportunity" requirement.
• You are enrolled in the FEGLI BIA on the day of your retirement.
• You did not convert your FEGLI life insurance coverage into an individual policy. If you have already converted the coverage, you must cancel the converted policy to be eligible for FEGLI BIA.

Breaks in service are not counted when determining the five continuous years of service requirement, as the individual was not eligible to be enrolled in FEGLI during that time.

If you are eligible to continue your BIA into retirement, you must complete Form SF 2818, Continuation of Life Insurance Coverage. On this form, you will choose whether to continue your FEGLI BIA into retirement and, if so, how much of your BIA you want to retain after age 65. You have three options: 75% reduction, 50% reduction, or no reduction. If you do not want to continue your FEGLI BIA insurance into retirement, you must indicate this on the form.

Calculating the cost of basic life insurance coverage after retirement

To calculate the cost of basic life insurance coverage after retirement, several factors need to be considered. Firstly, it is important to determine if you are eligible to continue your insurance coverage into retirement. For those with Federal Employees' Group Life Insurance (FEGLI), there are specific requirements that must be met. These include having been enrolled in FEGLI for the five years preceding retirement or from the earliest opportunity to enrol. Additionally, you must not have converted your life insurance coverage to an individual policy, or if you have, you must cancel it.

Assuming you meet the eligibility criteria, the cost of basic life insurance coverage after retirement depends on the post-retirement option you choose. Here are the three common options:

• 75% reduction: With this option, you maintain the basic coverage from your last day of employment. After turning 65, or upon retirement if you are already over 65, the coverage reduces by 2% per month until it reaches 25% of its original value. The premium for this option is $0.3467 per $1,000 of coverage per month, which you pay until the coverage reduction begins at age 65.
• 50% reduction: This option also allows you to maintain the basic coverage from your last day of employment. After age 65, or upon retirement if you are already over, the coverage reduces by 1% per month until it reaches 50% of the original value. For this option, you pay a higher premium. Until you reach age 65, you'll pay $1.0967 per $1,000 per month. After that, the premium drops to $0.75 per $1,000 per month, and you must continue paying this additional premium.
• No reduction: Choosing this option means you maintain 100% of the basic coverage from your last day of employment. This is the most expensive option. Until you turn 65, you'll pay $2.5967 per $1,000 per month, and after that, the premium drops to $2.25 per $1,000 per month. You will need to pay this premium for life unless you cancel or later elect the 75% reduction option.

It's important to note that the actual cost of basic life insurance coverage after retirement can vary based on individual circumstances, and there may be additional factors to consider, such as age, risk factors, and the insurance company's rates. Therefore, it is always recommended to consult official sources and insurance providers for accurate and personalised information.

The impact of age on the cost of basic life insurance coverage

Age is one of the most influential factors affecting the cost of basic life insurance coverage. Insurers assess premiums based on multiple personal rating factors, but an emphasis is placed on mortality risk, and the probability of death rises steadily as people get older.

The cost of life insurance is based on actuarial life tables that assign a likelihood of dying while the policy is in force. The older someone is, the more likely they are to become ill or die while under coverage. This is why the cost of life insurance rises as the policyholder gets older.

The increase in monthly premiums as the policyholder ages is much smaller when they are young, compared to when they are older. For example, the average life insurance quote only increases by 6% between ages 25 and 30, but it jumps by 86% between ages 60 and 65. Typically, the premium amount increases by about 8% to 10% for every year of age.

Life insurance rates for older adults can often be cost-prohibitive, and many insurers stop issuing new life insurance policies to seniors over a certain age, usually around 80. A guaranteed life insurance policy might be one of the only options available to seniors, but these policies can be expensive and usually have a low death benefit cap.

The age of the policyholder also affects the type of permanent life insurance policy they can get. The premium rises every year with some permanent life insurance policies, while others have level (fixed) rates or rates that vary. Permanent life insurance policies are generally more expensive than term life insurance policies because they are intended to provide coverage for the policyholder's entire lifetime.

When it comes to term life insurance, older people tend to pay higher premiums than younger people. This is because term life insurance rates are set when the policy is purchased and remain the same every year. So, if a policyholder takes out a term life insurance policy when they are young, they will usually enjoy cheaper rates that are fixed for the length of the policy.

The impact of risk factors on the cost of basic life insurance coverage

Basic life insurance coverage is influenced by several risk factors that can significantly impact the cost of premiums. These factors are assessed by insurance companies to determine an individual's risk profile and subsequent premium rates. While some factors, such as age and gender, are beyond one's control, others, like lifestyle choices and health, can be influenced to a certain extent. Here is a detailed overview of the impact of these risk factors:

Age: This is a critical factor in determining life insurance premiums. Younger individuals generally face lower premiums as they are considered to have a longer life expectancy and are statistically less likely to pass away. As a result, insurance companies view younger applicants as lower-risk and charge them lower rates. The cost of life insurance tends to increase with each year of age, as the likelihood of death increases over time.

Gender: Gender plays a role in premium rates due to differences in life expectancy between the sexes. On average, women live longer than men, resulting in lower insurance rates for women. Statistical models used by insurance carriers take these differences into account when determining premiums.

Health: The health status of an individual is a significant factor in life insurance costs. Pre-existing conditions, high blood pressure, anxiety, depression, and other health issues can lead to higher premiums. Insurance companies often conduct medical exams, including height, weight, blood pressure, and cholesterol checks, to assess an applicant's health. Managing serious health conditions and improving overall health can help secure more competitive rates.

Tobacco Use: Tobacco use, including smoking cigarettes, cigars, or vaping, significantly increases life insurance costs. Smokers may pay more than double the rates of non-smokers due to the higher health risks associated with tobacco use. Even occasional tobacco use can result in higher premiums, and it is essential to be honest about smoking habits to avoid issues with insurance claims.

Family Medical History: A family history of serious medical conditions, such as stroke, cancer, or heart disease, can impact insurance rates. Insurance companies consider the medical history of immediate family members, especially if these conditions have contributed to premature deaths. A family history of hereditary diseases can indicate a predisposition to certain ailments, leading to higher premiums.

Lifestyle and Occupation: High-risk jobs, dangerous hobbies, and certain lifestyle choices can result in higher insurance costs. Occupations such as police work or mining are considered hazardous and may lead to higher premiums. Similarly, risky hobbies like racing cars, scuba diving, or rock climbing can also increase insurance rates. Lifestyle choices, such as diet and exercise habits, can influence overall health, which, in turn, impacts insurance costs.

It is important to note that while these risk factors play a significant role in determining life insurance costs, the specific impact and weight of each factor may vary across different insurance providers and policies. Additionally, other factors, such as the type of policy (term or whole life) and the coverage amount, also influence the final premium rates.

How to cancel basic life insurance coverage after retirement

If you are retired, you can cancel your basic life insurance coverage at any time. However, there is no form for doing so; you must write a signed letter to the Office of Personnel Management (OPM)'s Retirement Office, clearly stating the cancellation you want to make. Be sure to include your signature, annuity number (CSA/CSF) or social security number, and your phone number. Send the letter to:

Office of Personnel Management Retirement Operations Center

P.O. Box 45

Boyers, PA 16017-0045

Please note that you cannot restore cancelled coverage after you have retired. Also, if you cancel your basic life insurance, you are also cancelling all your optional insurance.

Frequently asked questions