Federal Employees' Group Life Insurance (FEGLI)

Federal Employees' Group Life Insurance is the group term life insurance program covering most civilian employees of the U.S. federal government. It was established by 5 U.S.C. chapter 87 and is administered by the Office of Personnel Management, which contracts with a private insurer to provide the coverage. FEGLI is the federal-government instance of ordinary group life insurance: the coverage is term insurance with no investment or cash-value component, it is offered through the employer, and it ends or converts when the employment relationship ends unless the employee qualifies to continue it into retirement. What distinguishes FEGLI from a private employer's group plan is its statutory structure of a Basic layer plus named optional layers, and its specific set of retirement reduction elections.

FEGLI is organized as one Basic layer and three optional layers, and the Basic layer is automatic. Under 5 U.S.C. 8702, an eligible employee is insured for Basic on the day they become eligible and must file a written declination to get out of it, so it is an opt-out rather than an opt-in. Basic insurance is tied to salary: 5 U.S.C. 8701(c) sets the "basic insurance amount" as annual basic pay rounded up to the next multiple of $1,000, plus $2,000, with a floor of $10,000 for a low-paid employee. Those two amounts are fixed in the statute and are not indexed. Basic also carries accidental death and dismemberment coverage while the employee is working. On top of that sits the age-based multiplier in 5 U.S.C. 8704(a), which the Office of Personnel Management calls the "Extra Benefit" and which raises the Basic coverage for younger employees at no extra premium: the factor is 2.0 for an employee age 35 or under and steps down a tenth each year to 1.0 at age 45 and above. So a younger federal worker's Basic coverage is effectively larger than the salary-based amount while that factor applies.

On top of Basic, an employee may elect Option A, standard optional insurance in a flat amount set by the Office of Personnel Management; Option B, additional optional life insurance in multiples of one, two, three, four, or five times annual basic pay rounded up to the next $1,000 under 5 U.S.C. 8714b; and Option C, family coverage on a spouse and eligible children in multiples of one to five times a statutory base of $5,000 for the spouse and $2,500 for each child under 5 U.S.C. 8714c. The employee pays the full cost of the optional layers. The cost of the Basic layer is shared on a fixed split: 5 U.S.C. 8707(c)(1) withholds two-thirds of the level cost from the employee, and 5 U.S.C. 8708(a) has the employing agency contribute a sum equal to half of what the employee paid, which is the remaining third. Premiums for the age-rated optional layers rise in age bands, which matters for a retiree deciding whether to keep Option B, whose cost climbs steeply at older ages.

The retirement decision is the one that most affects long-term value. To carry Basic coverage into retirement an employee must have retired on an immediate annuity and have been insured throughout the five years of service immediately before retiring, or the full period the insurance was available if that is shorter. They must then elect how the Basic amount will reduce after age 65, and 5 U.S.C. 8706(b)(3) gives the choices: the 75 percent reduction, under which the coverage falls by 2 percent of face value each month until a quarter of it remains and, under 5 U.S.C. 8707(b)(1), no premium is withheld for months after the month the retiree turns 65; the 50 percent reduction, which falls by no more than 1 percent a month until at least half remains; or no reduction, which keeps the full amount in force. Both of the latter two carry a continuing cost. Coverage continued into retirement is life insurance only, without the accidental death and dismemberment piece the working employee had. The optional layers have their own continuation and reduction rules. The governing regulations are in 5 C.F.R. part 870, whose subparts set out the types and amounts of insurance, the cost, and the special rules for annuitants. Because FEGLI is term insurance, none of these choices builds cash value; the choice is purely about how much death benefit to carry and for how long.

Coverage starts from Basic, which is salary-based, and then the employee adds whichever optional layers they want. During working years the premiums for the optional layers are deducted from pay in age bands, so the cost rises as the employee ages. At retirement the employee elects a reduction schedule for the Basic amount and decides which optional layers to continue.

A hypothetical example, with a made-up salary, of how the Basic amount is set. Suppose an employee earns $62,300 in annual basic pay. That figure is rounded up to the next multiple of $1,000, which is $63,000, and the statutory $2,000 is added, for a basic insurance amount of $65,000. That is well above the $10,000 floor, so the floor does not apply. If the employee is age 35 or younger, the Extra Benefit factor of 2.0 doubles the coverage in force at no additional premium, to $130,000, and the factor then steps down a tenth a year from age 36 until it reaches 1.0 at 45, at which point the coverage in force is the $65,000 basic insurance amount itself.

Pros

• Group coverage generally requires no medical underwriting to enroll at the first opportunity, so employees who might struggle to buy an individual policy can still get coverage.
• The employing agency pays a third of the cost of the Basic layer, and younger employees receive extra Basic coverage at no additional premium.
• Coverage can be continued into retirement if the five-year requirement is met, and under the 75 percent reduction election it costs nothing after the retiree turns 65.

Cons

• The optional layers are age-rated, so their premiums climb sharply at older ages, which can make continuing them in retirement expensive.
• As term insurance, FEGLI builds no cash value and provides nothing if the coverage lapses or reduces away.
• Coverage is tied to federal employment; leaving federal service generally ends it, subject to limited conversion rights.