FEGLI or Private Life Insurance?

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tomwood
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FEGLI or Private Life Insurance?

Post by tomwood » Mon Jul 29, 2019 3:37 pm

I am not yet a federal employee but I’m told when I first begin I should be ready for the chance to opt-in or opt-out of the FEGLI. As I’m in good health, never smoked and in my late 30s, everything I’ve read says I’m better off with private insurance. But I believe this is only true if I continue for 30+ years and not necessarily in the short-term, is that correct? This brings me to my next question, is 30 years too long for a term life insurance policy?
I have had my $1M life insurance policy for about 5 years with 25 years remaining and I pay $887/year. That’s a fixed rate.

When I started the policy I didn’t have much in retirement and now there’s significantly more. In a few more years I’d expect significantly more than I have today. Which begs my early question about needing the life insurance earlier in life. In 24 years from now, as I’m about retire and have no dependents, my wife could live on the retirement-saved-money and wouldn’t need my life insurance policy.

Some information I read on here about FEGLI suggested using the Waepa.org website. Over the next 25 years that would be a worse option for as the premiums quickly get to $1,000-$2,000 per year later in the term. however if I switched today I’d be saying about $300 per year. That $300 isn’t life changing but it allows me to circle back to my earlier question with respect to discontinuing the policy later in life and never reaching that $2,000 premium level.

I can appreciate how this might be a complex topic and $887 isn’t altering my lifestyle in anyway. The insurance is there to help my family in the most unfortunate of situations and it’s best to never need the policy paid out.

Knowing this federal life insurance policy has limited windows to opt-in or opt-out, I want to be well educated before my first day so I make the correct choice when I start working and I’m offered the choice. Thanks to anyone who took the time to read this lengthy post

BruDude
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Re: FEGLI or Private Life Insurance?

Post by BruDude » Mon Jul 29, 2019 4:09 pm

If you are in good health, the private coverage is going to be a better option and you don't have to worry about losing the coverage if you change employers to the private sector. I'd keep what you have, take the "free" coverage from FEGLI, and call it a day. On a side note, look into private disability insurance if you haven't already.

rj342
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Re: FEGLI or Private Life Insurance?

Post by rj342 » Mon Jul 29, 2019 4:22 pm

Agree about taking the free/included base FEGLI coverage.
And, yes, your need for coverage should decline if you do things right, as your net worth improves, any kids graduate from college, etc.

When my 87 year old father passed 2 years ago, long retired from US Customs, there was a residual life insurance policy that paid out a $15k death benefit, basically enough to cover his funeral plus some extra for my mother. That was a good thing at the time as he had not managed finances well otherwise.

We weren't even positive he had that as he'd stopped paying any premiums for the term coverage long ago, so that was a nice surprise.
Last edited by rj342 on Mon Jul 29, 2019 4:27 pm, edited 2 times in total.

Topic Author
tomwood
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Re: FEGLI or Private Life Insurance?

Post by tomwood » Mon Jul 29, 2019 4:22 pm

BruDude wrote:
Mon Jul 29, 2019 4:09 pm
If you are in good health, the private coverage is going to be a better option and you don't have to worry about losing the coverage if you change employers to the private sector. I'd keep what you have, take the "free" coverage from FEGLI, and call it a day. On a side note, look into private disability insurance if you haven't already.
Is there any federal option for disability?

Topic Author
tomwood
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Re: FEGLI or Private Life Insurance?

Post by tomwood » Mon Jul 29, 2019 4:24 pm

rj342 wrote:
Mon Jul 29, 2019 4:22 pm
Agree about taking the free/included base FEGLI coverage.

When my 87 year old father passed 2 years ago, long retired from US Customs, there was a residual life insurance policy that paid out $15k, basically enough to cover his funeral plus some extra for my mother. That was a good thing at the time as he had not managed finances well otherwise.
As best I can understand from the website, I don’t believe there is a free portion any longer. But the initial base amount of coverage is cheap. I will ask if there’s a free portion, thank you for the advice

BruDude
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Re: FEGLI or Private Life Insurance?

Post by BruDude » Mon Jul 29, 2019 4:30 pm

tomwood wrote:
Mon Jul 29, 2019 4:22 pm
BruDude wrote:
Mon Jul 29, 2019 4:09 pm
If you are in good health, the private coverage is going to be a better option and you don't have to worry about losing the coverage if you change employers to the private sector. I'd keep what you have, take the "free" coverage from FEGLI, and call it a day. On a side note, look into private disability insurance if you haven't already.
Is there any federal option for disability?
Federal employees are eligible for the Federal Employee Retirement System (FERS) for disability. There is no group LTD option. You can qualify for 40% of your income on a private/individual disability insurance policy as a government employee that is eligible for FERS.

I think the free FEGLI coverage is only like $10k after you retire, been a while since I looked at it.

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Nestegg_User
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Re: FEGLI or Private Life Insurance?

Post by Nestegg_User » Mon Jul 29, 2019 4:31 pm

tomwood wrote:
Mon Jul 29, 2019 4:22 pm
BruDude wrote:
Mon Jul 29, 2019 4:09 pm
If you are in good health, the private coverage is going to be a better option and you don't have to worry about losing the coverage if you change employers to the private sector. I'd keep what you have, take the "free" coverage from FEGLI, and call it a day. On a side note, look into private disability insurance if you haven't already.
Is there any federal option for disability?
NOPE.... fed disability is based on same medical conditions as SS
....and fed disability retirement benefits are different than "normal" retirement:
https://www.opm.gov/retirement-services ... Disability

{usually private sector is cheaper ("healthy worker" aspects in private sector versus total population aspect for fed (more accommodating)) and costs rise for FEGLI on certain age "anniversaries" and can be quite high, relatively, at 55-60+}

tj
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Re: FEGLI or Private Life Insurance?

Post by tj » Mon Jul 29, 2019 4:48 pm

As far as I know, there is no "free" FEGLI insurance for employees. I declined all of FEGLI.

It is true that you can get some sort of free FEGLI after you retire, but it certainly isn't worth paying for 30 years to get it. I believe you need to hold FEGLI for five years before retirement to keep it, but you would be subject to underwriting if you wait that long ti pick it up.

I'd recommend checking 25 year term rates. I was paying $704/year on a $1,000,000 30 year policy from AIG. 5 years in, I got a $1,000,000 policy for 25 years for $606 from AIG.
Some information I read on here about FEGLI suggested using the Waepa.org website. Over the next 25 years that would be a worse option for as the premiums quickly get to $1,000-$2,000 per year later in the term. however if I switched today I’d be saying about $300 per year. That $300 isn’t life changing but it allows me to circle back to my earlier question with respect to discontinuing the policy later in life and never reaching that $2,000 premium level.
There are a billion group plans you would qualify for as a federal employee- AFSPA, WAEPA, SAMBA, GEBA, USBA - the latter even has group "whole life" options which I haven't heard of before. I think in any case buying a term policy for the specific time period will probably be cheaper than the group plans. If you were to buy a 10 or 15 year term policy it would be cheaper, than holding the group plan for 10 or 15 years?

MichDad
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Re: FEGLI or Private Life Insurance?

Post by MichDad » Mon Jul 29, 2019 5:28 pm

Many years ago, there was an open season for FEGLI. Back then, I was a young[er] and healthy federal employee. [One of those two adjectives still applies.] I comparison shopped private term life insurance policies and compared the rates against the FEGLI premiums. Fortunately, I qualified for the lowest private life insurance rates in my age bracket. I recall that the term policies were significantly less expensive for me than FEGLI. I purchased two term life insurance policies with different companies. I think one was a 25 year term and the second was a 30 year term. The 25 year term policy has expired but I remain covered by the 30 year policy.

At the time, I consulted with a very good friend of mine -- also a federal employee -- about his options. He had come through a bout with cancer. He couldn't qualify for any private term life insurance. I urged him to purchase the maximum FEGLI plan and he did so. Fortunately, he's still alive and well but he's still got that FEGLI coverage.

MichDad

LifeOfRiley
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Re: FEGLI or Private Life Insurance?

Post by LifeOfRiley » Mon Jul 29, 2019 5:54 pm

Long-time federal employee here. I had term life insurance from another government sponsored organization at my agency. It was much less expensive than FEGLI. Kept it until the kids were grown and on their own and I had no further need for it - which was about the time it started getting expensive. I also see no need to get FEGLI just so you can have a small bit of coverage into retirement. Shop around.

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MillennialFinance19
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Re: FEGLI or Private Life Insurance?

Post by MillennialFinance19 » Mon Jul 29, 2019 6:32 pm

I went to term4sale.com instead. The cost I was paying for $100k in coverage with FEGLI bought me $1m in coverage with Lincoln Financial. No-brainer.

Topic Author
tomwood
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Re: FEGLI or Private Life Insurance?

Post by tomwood » Mon Jul 29, 2019 6:56 pm

tj wrote:
Mon Jul 29, 2019 4:48 pm
I believe you need to hold FEGLI for five years before retirement to keep it, but you would be subject to underwriting if you wait that long ti pick it up.
Do you know at which age they require underwriting?
Can somone be denied when subject to underwriting or must they be accepted if they are willing to pay an increased rate?

Topic Author
tomwood
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Re: FEGLI or Private Life Insurance?

Post by tomwood » Mon Jul 29, 2019 6:58 pm

MichDad wrote:
Mon Jul 29, 2019 5:28 pm
Fortunately, he's still alive and well but he's still got that FEGLI coverage.
Great news!!

rascott
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Re: FEGLI or Private Life Insurance?

Post by rascott » Mon Jul 29, 2019 7:11 pm

Decline and re-shop your current term policy. Do you need it for 25 more years? A 20 year term policy for $1m, your age/health should be about $500-600/yr.

No reason to have term life insurance through an employer unless you have health issues that prevent a competetive quote on the private market. Last thing you want is a long-term illness where you quit your job, and then can't get life insurance.

You only need life insurance to the point someone is counting upon your income.

tj
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Re: FEGLI or Private Life Insurance?

Post by tj » Mon Jul 29, 2019 7:15 pm

tomwood wrote:
Mon Jul 29, 2019 6:56 pm
tj wrote:
Mon Jul 29, 2019 4:48 pm
I believe you need to hold FEGLI for five years before retirement to keep it, but you would be subject to underwriting if you wait that long ti pick it up.
Do you know at which age they require underwriting?
Can somone be denied when subject to underwriting or must they be accepted if they are willing to pay an increased rate?
As far as I know the only time fegli is available without underwriting is during your first year of employment and when they offer an open season. Open season for fegli doesn't happen very often.

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Stinky
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Re: FEGLI or Private Life Insurance?

Post by Stinky » Mon Jul 29, 2019 7:22 pm

rascott wrote:
Mon Jul 29, 2019 7:11 pm
Decline and re-shop your current term policy. Do you need it for 25 more years? A 20 year term policy for $1m, your age/health should be about $500-600/yr.

No reason to have term life insurance through an employer unless you have health issues that prevent a competetive quote on the private market. Last thing you want is a long-term illness where you quit your job, and then can't get life insurance.

You only need life insurance to the point someone is counting upon your income.
This general approach sounds good to me.

Analyze how long you need coverage for. It sounds from your post like it's not 25 years. The comment above recommended 20 year term. If your insurance need is even shorter (based upon age of dependents and other financial assets), you might be able to downsize even more to 15-year or 10-year term, at even greater premium savings.
It's a GREAT day to be alive - Travis Tritt

Tdubs
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Re: FEGLI or Private Life Insurance?

Post by Tdubs » Mon Jul 29, 2019 7:30 pm

Take the base policy, by the time you reach your 60s it is a good deal and gives you 25% of your final salary in retirement free.

The multiples are ridiculously expensive--shop around for term at places mentioned above before your open enrollment lapses.

Topic Author
tomwood
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Re: FEGLI or Private Life Insurance?

Post by tomwood » Mon Jul 29, 2019 8:18 pm

Tdubs wrote:
Mon Jul 29, 2019 7:30 pm
Take the base policy, by the time you reach your 60s it is a good deal and gives you 25% of your final salary in retirement free.

The multiples are ridiculously expensive--shop around for term at places mentioned above before your open enrollment lapses.
The base policy pays 25% of final salary in retirement upon death? Even for someone who is 100 and passes due to natural causes? Does the base policy require somone pay premiums annually after retirement? If not, that sounds like a good deal.

Tdubs
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Re: FEGLI or Private Life Insurance?

Post by Tdubs » Mon Jul 29, 2019 8:41 pm

tomwood wrote:
Mon Jul 29, 2019 8:18 pm
Tdubs wrote:
Mon Jul 29, 2019 7:30 pm
Take the base policy, by the time you reach your 60s it is a good deal and gives you 25% of your final salary in retirement free.

The multiples are ridiculously expensive--shop around for term at places mentioned above before your open enrollment lapses.
The base policy pays 25% of final salary in retirement upon death? Even for someone who is 100 and passes due to natural causes? Does the base policy require somone pay premiums annually after retirement? If not, that sounds like a good deal.
Yes, this is from the OPM frequently asked questions page:

"What will happen to my FEGLI Basic life insurance when I retire?"

If you meet the requirements, you must choose what will happen to your Basic when you turn 65 or retire, whichever is later. Your choices are:

75% Reduction: your Basic coverage reduces 2% each month until it reaches 25% of its pre-reduction amount. Your Basic is free (no premium) once the reductions begin and remains free until your death.

50% Reduction: your Basic coverage reduces 1% each month until it reaches 50% of its pre-reduction amount. There is an extra premium for this choice that you will continue to pay until you die, switch to 75% reduction, or cancel Basic.

No Reduction: your Basic coverage does not reduce. You maintain the same amount of Basic coverage you had when you stopped being enrolled as an employee. There is a larger extra premium for this choice that you will continue to pay until you die, switch to 75% Reduction, or cancel Basic.

https://www.opm.gov/faqs/topic/insure/i ... e50f8370c0

tj
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Re: FEGLI or Private Life Insurance?

Post by tj » Mon Jul 29, 2019 9:42 pm

tomwood wrote:
Mon Jul 29, 2019 8:18 pm
Tdubs wrote:
Mon Jul 29, 2019 7:30 pm
Take the base policy, by the time you reach your 60s it is a good deal and gives you 25% of your final salary in retirement free.

The multiples are ridiculously expensive--shop around for term at places mentioned above before your open enrollment lapses.
The base policy pays 25% of final salary in retirement upon death? Even for someone who is 100 and passes due to natural causes? Does the base policy require somone pay premiums annually after retirement? If not, that sounds like a good deal.
Is it a good deal when you are paying the premiums for 30 years? If there's an open season later in my federal career, I might bite, but it doesn't seem to make sense to use it today?

UpperNwGuy
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Re: FEGLI or Private Life Insurance?

Post by UpperNwGuy » Mon Jul 29, 2019 9:53 pm

I had FEGLI throughout my 40 year Federal career and into retirement, and since reaching age 65 I have the "free" insurance that comes with the 75% reduction in coverage. I compared it to outside coverage at several points during my Federal career and concluded that FEGLI was a good deal overall. I augmented FEGLI with other insurance coverage in the 1980s and 1990s when I my children were young, but I cancelled those policies when my children reached adulthood. I've been exclusively FEGLI since 2000. I reduced my coverage when I hit age 60, because the premiums increased, and again when I reached age 65.

tj
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Re: FEGLI or Private Life Insurance?

Post by tj » Mon Jul 29, 2019 10:21 pm

Reading form 2817 it looks like you can elect fegli when you have a life event without underwriting, which I guess would include getting married or having a kid....

peseta
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Re: FEGLI or Private Life Insurance?

Post by peseta » Tue Jul 30, 2019 1:20 am

I looked into this a few years ago when buying insurance prior to the arrival of our first child (I am fortunate to be in good health like you). Life insurance purchased in the marketplace (10x income) was cheaper, *by a factor of about three*.

As others suggest, I think many feds don't realize just how much of a rip-off FEGLI is for the relatively healthy person. I ran the numbers at the time and recall that even the basic benefit seemed to be a very inferior product. Of course, things can be very different if you have a medical condition that would have a negative impact on price or make you uninsurable in the private marketplace. Then, FEGLI could be a godsend.

Also, as others note, groups like the Worldwide Assurance for Employees of Public Agencies (WAEPA) also sell insurance to feds. My recollection from running the numbers is that WAEPA policies were a bit better value than FEGLI, but still a rip-off compared to private insurance for a relatively healthy person.

peseta

Swansea
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Re: FEGLI or Private Life Insurance?

Post by Swansea » Tue Jul 30, 2019 7:24 am

peseta wrote:
Tue Jul 30, 2019 1:20 am
I looked into this a few years ago when buying insurance prior to the arrival of our first child (I am fortunate to be in good health like you). Life insurance purchased in the marketplace (10x income) was cheaper, *by a factor of about three*.

As others suggest, I think many feds don't realize just how much of a rip-off FEGLI is for the relatively healthy person. I ran the numbers at the time and recall that even the basic benefit seemed to be a very inferior product. Of course, things can be very different if you have a medical condition that would have a negative impact on price or make you uninsurable in the private marketplace. Then, FEGLI could be a godsend.

Also, as others note, groups like the Worldwide Assurance for Employees of Public Agencies (WAEPA) also sell insurance to feds. My recollection from running the numbers is that WAEPA policies were a bit better value than FEGLI, but still a rip-off compared to private insurance for a relatively healthy person.

peseta
You are on the mark!

2cents2
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Re: FEGLI or Private Life Insurance?

Post by 2cents2 » Tue Jul 30, 2019 7:30 am

I signed up for both private and FEGLI. I am risk adverse and FEGLI did give me peace of mind.
FEGLI is very expensive, but as far as I am aware there are no exclusions like you may or may not have with private insurance.
(Some examples of exclusions that you may or may not have with private insurance - sky diving, private pilot, acts of war or terrorism, etc)

I phased out the multiples as I got older (and the premiums got more expensive) and just kept the basic plus the private insurance into retirement. (I identified a cash flow shortfall from the survivor benefits until the time DH could access retirement funding in the scenario where DH wasn’t working that I wanted to make sure was covered. )

I will stop paying premiums for the basic at age 65 and the coverage will drop a little bit each month until it reaches 25%. I thought this coverage might come in handy for my survivors to use for final expenses. (Maybe it won’t cover everything as time passes with inflation, but still better than nothing.)

FEGLI is very difficult to get coverage later on if you decline it initially. If you carry the basic, you can add coverage for a qualifying event such as marriage and birth/adoption of children.

I can only remember one time they had an open season for FEGLI during my career. There was the period to sign up and then there was a waiting period before the policy was in force.

2cents2
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Re: FEGLI or Private Life Insurance?

Post by 2cents2 » Tue Jul 30, 2019 7:44 am

Here is a link to the OPM handbook which has a lot of useful info on FEGLI
https://www.opm.gov/healthcare-insuranc ... i-handbook

Valuethinker
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Re: FEGLI or Private Life Insurance?

Post by Valuethinker » Tue Jul 30, 2019 7:48 am

tomwood wrote:
Mon Jul 29, 2019 3:37 pm
I am not yet a federal employee but I’m told when I first begin I should be ready for the chance to opt-in or opt-out of the FEGLI. As I’m in good health, never smoked and in my late 30s, everything I’ve read says I’m better off with private insurance. But I believe this is only true if I continue for 30+ years and not necessarily in the short-term, is that correct? This brings me to my next question, is 30 years too long for a term life insurance policy?
I have had my $1M life insurance policy for about 5 years with 25 years remaining and I pay $887/year. That’s a fixed rate.

When I started the policy I didn’t have much in retirement and now there’s significantly more. In a few more years I’d expect significantly more than I have today. Which begs my early question about needing the life insurance earlier in life. In 24 years from now, as I’m about retire and have no dependents, my wife could live on the retirement-saved-money and wouldn’t need my life insurance policy.

Some information I read on here about FEGLI suggested using the Waepa.org website. Over the next 25 years that would be a worse option for as the premiums quickly get to $1,000-$2,000 per year later in the term. however if I switched today I’d be saying about $300 per year. That $300 isn’t life changing but it allows me to circle back to my earlier question with respect to discontinuing the policy later in life and never reaching that $2,000 premium level.

I can appreciate how this might be a complex topic and $887 isn’t altering my lifestyle in anyway. The insurance is there to help my family in the most unfortunate of situations and it’s best to never need the policy paid out.

Knowing this federal life insurance policy has limited windows to opt-in or opt-out, I want to be well educated before my first day so I make the correct choice when I start working and I’m offered the choice. Thanks to anyone who took the time to read this lengthy post
I'd stick with my private policy, in truth. The annual money is not material to your final outcome. But if you died prematurely it's a material amount of money.

If the Federal Life insurance is without exclusion clauses, that is quite valuable.

Your widow having $1m is better than her not having $1m. Mum is in her 90s and going strong - and Dad died very unexpectedly. We are lucky that he provided for her so well.

If you do decide to drop it, or exchange it, remember the exclusion period. For a period, and I believe it is legally set by State, the insurance company can disallow a life claim - in particular (but not only) if it was suicide or some other conditions that you might have known about. After a certain number of years, they cannot. It's easy to leave yourself inadvertently uninsured by dropping the previous policy too soon.

Topic Author
tomwood
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Re: FEGLI or Private Life Insurance?

Post by tomwood » Tue Jul 30, 2019 1:25 pm

UpperNwGuy wrote:
Mon Jul 29, 2019 9:53 pm
I augmented FEGLI with other insurance coverage in the 1980s and 1990s when I my children were young, but I cancelled those policies when my children reached adulthood.
Did you buy a 20-30 year policy and then cancel, or did you buy a shorter term policy? Did you buy from their birth until after they finished school?

UpperNwGuy
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Re: FEGLI or Private Life Insurance?

Post by UpperNwGuy » Tue Jul 30, 2019 2:02 pm

tomwood wrote:
Tue Jul 30, 2019 1:25 pm
UpperNwGuy wrote:
Mon Jul 29, 2019 9:53 pm
I augmented FEGLI with other insurance coverage in the 1980s and 1990s when I my children were young, but I cancelled those policies when my children reached adulthood.
Did you buy a 20-30 year policy and then cancel, or did you buy a shorter term policy? Did you buy from their birth until after they finished school?
It wasn't that precise. I had a couple of whole life policies (that I later regretted purchasing), and I cashed them out when the oldest two kids started college. I also had some term insurance that I cancelled after my divorce. FEGLI was the foundation throughout.

The main points I intended to communicate in my earlier comment:
— FEGLI has served me well.
— FEGLI is not an all-or-nothing choice. You can own a mix of FEGLI and private insurance.

tj
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Re: FEGLI or Private Life Insurance?

Post by tj » Tue Jul 30, 2019 3:06 pm

FEGLI is very difficult to get coverage later on if you decline it initially. If you carry the basic, you can add coverage for a qualifying event such as marriage and birth/adoption of children.
It seems to me that you can elect Basic when an of those things happen after initially waiving it. Am I understanding wrong?

2cents2
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Re: FEGLI or Private Life Insurance?

Post by 2cents2 » Tue Jul 30, 2019 3:30 pm

tj wrote:
Tue Jul 30, 2019 3:06 pm
FEGLI is very difficult to get coverage later on if you decline it initially. If you carry the basic, you can add coverage for a qualifying event such as marriage and birth/adoption of children.
It seems to me that you can elect Basic when an of those things happen after initially waiving it. Am I understanding wrong?
You are correct. Thanks for clarifying that.

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