March 23, 2005 By Reg Jones
A Pair of
Life Insurance
Options
There are two
features of the
Federal
Employees Group
Life Insurance
(FEGLI) program
about which you
are probably
unaware. First,
you can now
irrevocably
assign your life
insurance
benefits to
another person
or persons.
Second, you can
cash in your
Basic insurance
when you have
been diagnosed
as being
terminally ill.
However, by law,
these options
are mutually
exclusive. If
you elect one,
you can’t elect
the other.
Assignment
of Benefits
Before October
3, 1994, only
those with
private life
insurance could
make an
irrevocable
assignment of
their FEGLI
insurance as
part of an
estate planning
effort, to
obtain cash
before their
death, or for
other valid
reasons. Under
current law, you
can
transfer
ownership and
control of your
Basic, Standard
Optional, and
Additional
Optional
insurance to any
individual (s),
corporation or
irrevocable
trust – with one
exception. Under
a 1998 law, you
can’t transfer
ownership if a
court has issued
a decree of
divorce,
annulment or
legal separation
and specifically
stated that your
FEGLI benefits
must be
paid to someone
else. On the
other hand, if
you can make an
irrevocable
transfer, you
won’t be able to
cancel your life
insurance or
make any changes
in your
beneficiary.
Living
Benefits
There are
companies that
are willing to
buy the
insurance
policies of
people who are
terminally ill.
Such companies
will purchase a
policy at less
than its face
value. How much
less depends on
your life
expectancy.
These are called
viatical
settlements.
As of July
26, 1995, the
law provides
that anyone who
is terminally
ill and has a
life expectancy
of nine months
or less may
elect what is
called a “living
benefit.” It’s
an accelerated
payment of Basic
life insurance
benefits to the
policyholder,
rather than to a
beneficiary or
survivor.
The
government’s
living benefit
provision
differs from the
private sector
viatical
settlements in
several ways.
Here are the two
most important
ones. First,
only Basic
insurance can be
cashed in.
Second, viatical
settlements may
be made with
individuals
whose life
expectancy is
greater than
nine months.
A living
benefit may be
elected only
once, and that
election can not
be reversed. So,
if you elect a
full living
benefit, you
will be cashing
in your entire
Basic policy. If
you elect a
partial living
benefit, you
will only be
cashing in a
portion of that
policy. That can
be done in
multiples of
$1,000. With a
full living
benefit, you
would no longer
pay any
premiums. With a
partial benefit,
your premiums
would be
reduced. Note:
Retirees and
compensationers
may only
elect full
living benefits.
Clearly, if
you elect a full
living benefit,
your survivors
will not be
eligible for any
Basic insurance
benefit. A
partial benefit
will leave them
with the
remainder of
your policy.
However, you
need to
understand that
the dollar value
of the remaining
amount will be
frozen. It will
never change,
even if your
salary goes up.
If you are
eligible for a
FEGLI living
benefit, the
amount you
receive will be
less than the
face value of
your policy.
That reduction
represents the
interest lost to
the life
insurance fund
because they
paid you ahead
of schedule.
Fortunately,
there is no
profit margin
included in a
living benefit;
therefore, the
amount you
receive will
usually be
higher than that
offered by a
viatical
settlement firm.
Like viatical
settlements,
living benefits
are based on the
expectation that
you will shortly
die. But that
doesn’t always
happen. Some
people who have
been diagnosed
as terminally
ill don’t die as
soon as expected
or even recover
from their
terminal
condition. If
you are one of
the lucky ones
and have elected
a living
benefit, the
good news is
that you won’t
have to repay
any of the money
you received.
Living
Benefits from
OPM
You may elect
to receive a
lump-sum
payment called
a living
benefit if you
are terminally
ill and have a
documented
medical
prognosis that
you are not
expected to
live more than
nine months.
Eligible
annuitants may
elect a full
lump-sum
payment equal
to their Basic
life insurance
amount, plus
any extra
benefit for
persons who
are under age
45, that would
be in effect
nine months
after the date
the Office of
Federal
Employees’
Group Life
Insurance (OFEGLI)
receives a
completed
claim for
living
benefits. If
the life
insurance is
reducing, the
lump sum will
be the reduced
amount payable
nine months
after OFEGLI
receives the
completed
claim form.
Annuitants
cannot elect a
partial living
benefit
payment; this
option is
available only
to employees.
If you have
assigned your
life insurance
coverage,
neither you
nor the
assignee may
elect living
benefits.
However, if
you elected a
living
benefit, you
may assign any
remaining life
insurance.
Your living
benefits
payment will
be reduced by
a nominal
amount to make
up for lost
earnings to
the Life
Insurance Fund
because of the
early payment
of benefits.
If you
receive living
benefits after
retirement, no
Basic life
insurance will
be payable
after your
death. We will
stop
withholding
any Basic life
insurance
premiums from
your monthly
annuity. If
you elected
living
benefits
before you
retired, the
amount of
Basic life
insurance
payable after
your death and
the premiums
we withhold
from your
annuity depend
upon the
amount of
living
benefits you
received
before
retirement.
Your
election of
living
benefits has
no effect on
the amount of
any optional
life insurance
you may have.
We will
continue to
withhold any
premiums for
optional
insurance.
You may
contact the
Office of
Federal
Employees’
Group Life
Insurance at
1-800-633-4542
to obtain Form
FE-8, Claim
for Living
Benefits,
to elect
living
benefits. This
form is not
available from
agencies or
from your
retirement
system.
Postal
employees may
obtain
additional
information in
FE-76-20, FEGLI
Booklet for
Postal-Service
Employees,
at OPM website.
If you are
retired, you may
obtain
additional
information
concerning
living benefits
in Pamphlet RI
76-12,
Information for
Retirees and
their Families
at
OPM website
or you can
contact the
Office of
Federal
Employees’ Group
Life Insurance (OFEGLI)
at
1-800-633-4542.
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