The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Manguy888 on April 13, 2015, 10:32:46 AM
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Hi all - I am a new government employee trying to wrap my brain around my benefits. FEGLI - the life insurance component - is posing a challenge because I don't feel I fully understand it, and I have until 5/8 to make a decision on it. apparently you can always downgrade your coverage, but after 5/8 I can't increase it without a life event (I don't expect any).
There are two things I'm having trouble figuring out:
1 - I got autoenrolled in the basic coverage at $15 per pay period (~30/month) and 200k benefit. Do I have to keep this if I don't want it?
2 - The 'multiples of pay' options seem pretty expensive when compared to term policies from private insurers, and will only go up as I age (I am 33 and healthy). Based on this fact, why would anyone use this insurance? Is there something special that I'm missing?
I have some New York Life term insurance, 20 year term, 250k benefit for $22/month. I can start a new 20 year term with them at 500k coverage for under $40 per month.
Based on my situation and my mustachian ways, I think that 500k total benefit for 20 years is enough. By then the kids will be gone and I'll have a nest egg saved up and no need for insurance.
Based on this, should I just sign up with New York Life and drop my federal coverage (if I can - see question 1)?
I made a quick chart of different insurance options and how they would combine in cost and benefit. Not necessary to answer my questions above but I'll attach it anyway.
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Before you make any decision, make sure to check out the death and disability benefits that are inherent in FERS, FECA, and Social Security (since you said you're a new hire, I'm assuming you're under FERS, but there are other retirement plans as well, such as for law enforcement officers). In addition to FEGLI, your surviving spouse and dependents can receive substantial benefits under FERS, FECA, and Social Security with the amounts depending on how you die, your age, your salary, the number of dependents, and so on.
I'd say that, generally, the benefits provided under FEGLI Basic combined with FERS and FECA and Social Security are more than adequate to cover most people and situations. In fact, a lot of us find that we're worth quite a bit more dead than alive! I would not get anything beyond FEGLI Basic, it's likely overkill. I'd be inclined to cancel the policy with New York Life and just stick with the federal benefits, provided you plan on remaining employed with the federal government for a long time.
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i got all the options with the 5x since it was just $2 more than basic for my age. probably buying more than i need but for that price, i can afford $17 instead of $15
but since you have another plan, it may not be needed
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I'm going to recommend opposite of DoubleDown and suggest that you get the private insurance.
FEGLI is only in place if you are working for the Federal government, and who knows what life is going to look like in 3-5 years. You might decide this government gig just isn't for you and want to bail. Your spouse might get a kick ass job somewhere and you have to leave your cushy federal gig. If your insurance is already covered outside your employer's influence, then you may feel more free to change jobs. FEGLI is a great deal if you are uninsurable outside of employment (ie medical conditions, age, etc) but if you are generally young and healthy, I strongly feel like private insurance is the way to go.
As a matter of fact, my DH is looking at whether to transition SGLI to VGLI when he retires, and we figured out that private insurance is still a better deal for us (YMMV)
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To answer your first question, you can "waive" all insurance and drop what they auto-enrolled you in.
Often FEGLI isn't the cheapest option if you are otherwise insurable. If you can get a better term rate and at the end of the term you won't need insurance, go for it. In addition to life events (marriage, birth of child, etc.) you can also enroll in FEGLI by passing a physical you pay for out of pocket (not covered by health insurance).
NB: I've been retired for 6 years so its possible that things have changed - but I doubt it in this case.
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To answer your first question, you can "waive" all insurance and drop what they auto-enrolled you in.
Often FEGLI isn't the cheapest option if you are otherwise insurable. If you can get a better term rate and at the end of the term you won't need insurance, go for it. In addition to life events (marriage, birth of child, etc.) you can also enroll in FEGLI by passing a physical you pay for out of pocket (not covered by health insurance).
NB: I've been retired for 6 years so its possible that things have changed - but I doubt it in this case.
Mary is right, you can still waive all coverage. And if you want it later due to a life changing event, the physical is your responsibility. The real benifit to the FEGLI insurance is immediately having coverage without a medical screening first. Once you waive it though, and decide later you want it back; the medical screenings will creep back into the process.
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Once again the MMM forum has beat every other method I used to figure this out, including google and the FEGLI plan website itself. Impressive! Thanks all.
I'm understanding now that I can waive this insurance if I want and put $15 per pay period back in my pocket.
I'm also understanding that since I am young and healthy, private term insurance likely makes more sense for me. For the amount of insurance I want, 500k, the cheapest option would be to start a term with NYL for 20 years at $40 per month. This beats any FEGLI cost and it's fixed. In 20 years I should have enough assets to be self insured.
Overall, it sounds like FEGLI only makes sense if:
- you have medical conditions that make private insurance expensive or not an option
- you want to be insured for much longer than a standard term policy without worrying about a lapse in coverage if you develop a condition
- you're the kind of person who takes no action with this stuff (you're autoenrolled and your family is covered if you die).
Thanks again!
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Thanks for posting this Manguy! I upped my private term life insurance a few months back and haven't gotten around to cancelling my FEGLI. This post was a good kick in the butt to take some action.
Now off to navigate through the 2 dozen government websites to find how to do that.
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For a different take: Do you need life insurance? We both had signed up for life insurance insurance through our jobs and then looked at our assets and decided that the amount we had was enough that it didn't make sense to pay $800/year for coverage we really didn't need. And we have a small mortgage and a large savings rate, so one of us could easily live of their own income (and still keep saving) if the other died. And if we have a kid, the amount of money we'd have by then would take pretty good care of them until 18.
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forummm, good question and important to ask given the MMM ethos.
For my part, I have a good savings rate and decent savings total (around $300k at age 33, mostly retirement accounts). But I also have two girls, 18 months and 3 months old.
I know that it's statistically unlikely that I'll die, but if I died tomorrow I'd want the following things:
- my wife to be able to keep working her job (which she loves) and afford daycare for the girls
- a small sum for each girl for college
- the ability for my wife to either pay off our mortgage, sell the house quickly (potentially at a loss) to move closer to family, or be able to keep living in the house without scraping by.
In ten years I might be self-insured. But if I die tomorrow none of the above are possible without insurance.
It's a great question to ask though, and everyone should do their own analysis and not ask an insurance salesman 'how much insurance do I need?'.
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SomedayStache - I think you change your FEGLI through the EBIS website (government acronyms are the best!)
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Isn't EBIS exclusive to Army personnel?
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I'm navy - civilian scientist - and it's what they told me to use. YMMV, and also I'm very new and still figuring everything out.
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I would recommend you get the insurance, and the maximum amount until such time as you can self-insure...
In was in the same position ~10 years ago, and compared the coverage amounts to private insurance to find them comparable or even private being less expensive. What I did not calculate was the huge growth of insurance coverage you get as you progress in your career. I accelerated quickly from making ~$35k to nearly $100k in 5-7 years. The cost of 7x (5x multiple plus 2x for being under age 35) $35k for ~$250k coverage was better private insurance, but the cost of 7x $100k was far more expensive on the private side. One other consideration is that the election is made pre-tax, which adds a bit of savings by reducing your taxable income. I jumped at the opportunity to get it once I qualified for a life event.
However, this is assuming you're coming in relatively young and are on a career progression track like myself. Just sharing my experience.
Rick
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Thanks for sharing your experience Rick!
My case is a little different. I'm coming in as a journeyman after working as a contractor for 12 years, starting salary 98k and expecting very minimal raises (at least compared to my contractor years) until I top out around 115k. So the benefit you suggest is less important for me.
Very good food for thought tho, especially for other federal employees coming in right from college
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Wowzers have I been overpaying for life insurance for the entirety of my career! For ~$360/year I had a benefit of:
$174,000 ($261,000 for accidental death) on me and $20,000 on my spouse, $10,000 on my children.
I have a privately purchased $750,000 term policy that costs me $400/year, the premiums won't increase as I age, the benefit won't decrease as I age, and my private policy will still exist if I decide to leave federal employment. In my case the private policy wins by far. I just cancelled FEGLI and I did it through EBIS (Even AF employees use EBIS) - so thanks for pointing me in the right direction Manguy.
---edited due to my misunderstanding of a previous post and deleting a response that didn't make sense.
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No problem SomedayStache. I feel like I've been taking more from the forums than I've been giving lately, so I'm glad I could be helpful.