The COVID-19 pandemic has reminded us that no one is immune to life’s ever-present uncertainties and that there’s nothing more important than family.
It may also serve as a wakeup call to the importance of protecting your family from as much uncertainty as possible. For however large or small your family and whatever your age, we are all faced with the reality that an unexpected death would present a financial burden.
Early career federal employees might well assume that the life insurance available to all feds, Federal Employees’ Group Life Insurance (FEGLI), provides sufficient coverage. But the reality is that many members of this cohort may underestimate not only how much coverage they need, but also how much they have through FEGLI.
With that in mind, here’s a look at the key questions, facts, and figures for feds in their 20s and 30s to consider when evaluating their life insurance needs, coverage, and options.
What are your needs?
The large financial responsibilities traditionally associated with a need for life insurance can arrive quickly — and often in quick succession. So, for starters, consider your income in the context of:
• Your partner — nearly a third (29%) of 18- to 34-year-olds are married, and another 12% live with an unmarried partner.
• Your kid(s) — the average mother has her first child at age 26.4 and has 2.2 children, while the steadily-rising costs of raising a child were last reported at $233,610 through the age of 17.
Your mortgage — the average age of a first-time home buyer is 33, and home ownership among millennials is trending upward.
But even if you lack these common financial responsibilities, there’s a good chance that you might leave a parent facing oft-overlooked expenses when you’re gone. These run the gamut, from funeral costs, which average nearly $10,000, to student debt that a co-signer would inherit, to the big costs they’d have to cover if you’re one of the roughly 10 million 18- to 34-year-olds who serves as a family caregiver.
Considering how common these expenses are and how quickly they can add up, it’s no surprise that people who only possess group term life insurance through their employer have an average coverage shortfall of $225,000.
Which begs the next question:
What does (and doesn’t) FEGLI offer?
Basic FEGLI is a subsidized group term policy that automatically covers you unless you opt out. Your Basic Insurance Amount (BIA) is equal to your annual rate of basic pay rounded up to the next even $1,000 plus $2,000, and an Extra Benefit multiplier will double the amount payable if you die when you are age 35 or younger. Beyond Basic, you may expand your coverage through Option A, Option B, or Option C, making FEGLI an incredibly convenient way to protect your loved ones.
However, FEGLI as a whole may lack many features that are important to you. Alternatives or supplemental plans may better serve your needs in not only a more complete, but potentially more cost-effective, manner. Among these features are:
• Flexibility — As is the case with most employer-provided group insurance programs, your amount of coverage under FEGLI is based upon your salary level and has a limit. Option B coverage, for example, maxes out at five times your salary, while coverage exceeding this maximum is generally recommended for those who carry a mortgage, have a spouse, and/or have children. In contrast, alternative plans offer you the ability to purchase a policy with higher levels of coverage regardless of your salary — and may be surprisingly affordable, as a healthy 30-year-old man could get a $500,000 term life policy for about $1 per day.
• Portability — You cannot take your FEGLI policy with you when you resign from the federal government, so you would need to undergo a new, potentially more difficult underwriting process and restart your coverage if/when you join a new employer. However, alternative policies “go with you,” allowing you to maintain your coverage and your premium rate as long as you continue to pay it.
• Strong family protection — FEGLI offers limited levels of family protection, which can be quite difficult to secure, at a time when dual income is a necessity for many households. For example, while Option C allows you to enroll your spouse or child, you must do so within a tight timeframe and may face a “pass/fail” form of underwriting that provides little to no gray area for people who have medical conditions common to all ages, such as sleep apnea or a history of mental illness. Therefore it may make sense to supplement your FEGLI policy with one or more others, which can often offer stronger and more customizable, yet still affordable, spousal and child coverage.
• Potential cost savings for above-average health — FEGLI’s premiums do not depend upon your level of health, so those in good health — aka many folks in their 20s and 30s — may be missing out on the significant cost savings that alternative plans, many of which reward better health with a lower premium, may offer.
When considering all of the above, it’s clear that FEGLI may not be able to keep up with the rapidly-changing needs of Feds in their 20s and 30s, and that it’s never too early to review them with a trusted expert who can help you find a personalized policy that does.
Shelly Giuliano is product manager for the Government Employees’ Benefit Association (GEBA) — a nonprofit promoting access to insurance and investment options.