Questioning the optimal life insurance option: Is FEGLI Option B the most advantageous selection?

Article: The Cost of FEGLI Option B: A Closer Look

Life insurance is an essential component of a financial plan, and for federal employees, the Federal Employees' Group Life Insurance (FEGLI) program offers a simple way to secure coverage. However, one of its optional additional coverages, FEGLI Option B, requires closer examination, particularly when it comes to long-term costs.

FEGLI Option B provides coverage in multiples of your salary, and the cost for $100,000 of coverage increases every five years, leading to a significant long-term expense. For instance, a 25-year-old with a $150,000 salary and maxed-out Part B with 5x coverage would pay less than $600 annually for $750,000 of insurance. However, for a 65-year-old with the same coverage, the annual premium jumps to over $1,000, and the total cost for $500,000 in coverage would be approximately $165,000 in total premiums.

Comparing this to private term life insurance, the cost for FEGLI Option B can be more expensive, especially for older ages. For example, the average annual premium for a private term life insurance policy offering $100,000 coverage at age 60 typically ranges from approximately $400 to $1,000, depending on health, insurer, and policy specifics. As one ages, costs for FEGLI Option B increase dramatically, making private term life insurance potentially more cost-effective.

It's essential to note that the cumulative expense of holding FEGLI Option B for decades can be substantial. For instance, a 25-year-old who keeps $100,000 of FEGLI B until retirement at 65 spends about $13,500 in total premiums. On the other hand, for someone needing $500,000 of coverage with FEGLI B and holding it until retirement at 65, the total premiums would be nearly $67,500.

While FEGLI Basic premiums are stable regardless of age, FEGLI Option B charges premiums based on age brackets. This means that at younger ages, FEGLI B can be affordable, but as one ages, the costs become more significant.

In conclusion, while FEGLI provides a straightforward way for federal employees to secure life insurance, it's crucial to understand the long-term costs associated with FEGLI Option B, particularly as one ages. It's always a good idea to compare the costs and benefits of FEGLI with other life insurance options available in the private market to ensure you're making the best decision for your financial plan.

Questioning the optimal life insurance option: Is FEGLI Option B the most advantageous selection?