Converting FEGLI Coverage to an Individual Life Insurance Policy: Your Path to Secure Coverage
As federal employees, we often rely on the Federal Employees’ Group Life Insurance (FEGLI) program for our life insurance needs. However, life is full of unexpected changes, and there may come a time when you need to transition from FEGLI to an individual life insurance policy. In this blog, we’ll explore the process of converting your FEGLI coverage to an individual life insurance policy and understand the why behind this important decision.
Understanding the FEGLI Conversion Policy
When your FEGLI life insurance coverage ends involuntarily, such as leaving federal service, changing to a job position that doesn’t qualify for FEGLI enrollment, or retiring without meeting retirement coverage requirements, you have the opportunity to convert all or part of your FEGLI coverage to a non-FEGLI individual life insurance policy. This conversion option includes your Basic Insurance Amount (BIA), Option A – Standard, and Option B – Multiple of Salary coverage.
One key advantage of this conversion is that it offers guaranteed coverage without the need for a medical exam. However, it’s important to note that your premiums will change, as you will no longer receive a government contribution towards your insurance premiums, and you will no longer be part of the FEGLI insurance pool.
The converted policy will typically be an individual cash-value life insurance policy, allowing it to accumulate cash value over time. This cash value can be utilized through policy loans, offering you added financial flexibility. Keep in mind that this cash value policy cannot later be converted into a term life insurance policy.
Steps to Convert FEGLI Life Insurance to an Individual Policy
Converting your FEGLI coverage to an individual life insurance policy is a straightforward process. Here are the steps to follow:
Step 1: Complete Form SF 2819
You will need to complete Part C (Eligibility Statement) of Form SF 2819. Your employing agency should also complete Part A (Instructions to Employing Agency) of the same form.
Step 2: Obtain Form SF 2821
You should request Form SF 2821 (Agency Certification of Insurance Status) from your agency. Attach this form to the completed Form SF 2819, which will be sent to the Office of Federal Employees’ Group Life Insurance (FEGLI) at the address provided below. If you don’t have Form SF 2821 yet, don’t delay sending Form SF 2819; you can include Form SF 2821 later.
Step 3: Mail Your Forms
Mail the completed Form SF 2819 along with attached Form SF 2821 to the following address:
Office of Federal Employees’ Group Life Insurance (FEGLI)
200 Park Avenue
New York, NY 10166-0188
Types of Individual Policies
Once you’ve initiated the conversion process, it’s important to understand the types of individual life insurance policies available:
1. Ordinary Life Policy: Also known as a Whole Life or Straight Life policy, this type provides lifetime protection in exchange for premium payments throughout your life, usually until age 100. Cash value begins to accrue after one, two, or three years of premium payments. You can borrow against the cash value, but be aware that withdrawals may be taxable and subject to penalties if taken before a certain age.
2. Variation of Ordinary Life Policy: Similar to Ordinary Life, this policy has a shorter premium payment period, typically until age 95, after which it becomes paid-up for life. Premiums are usually higher due to the shorter payment period, but cash value accumulates more quickly.
Cost of an Individual Policy
Individual life insurance policies are issued as either participating or non-participating:
– Participating Policies: These policies have higher premiums but pay dividends to policyholders. The dividends typically start after one, two, or three years of premium payments, effectively reducing the net cost of the policy.
– Non-participating Policies: These policies have premiums set close to the actual cost of insurance protection. Premiums are guaranteed, and no dividends are paid.
Why Choose an Individual Policy?
Converting your FEGLI coverage to an individual life insurance policy can be a smart move for several reasons:
1. Retirement Planning: If you’re eligible to retire but need life insurance during retirement, converting to an individual policy can be more cost-effective than FEGLI.
2. Changing Employers: If your new employer doesn’t offer group life insurance, an individual policy ensures you maintain coverage.
3. Ages 70 and Above: If you’re over age 70 and retiring, finding term insurance can be challenging. The FEGLI-sponsored individual policy can serve as a burial fund or provide minimal coverage for your needs.
4. Debt and Burial Coverage: If you’re leaving federal service for various reasons and want to cover debts or have a burial fund, an individual policy can provide essential financial protection.
Converting your FEGLI coverage to an individual life insurance policy offers flexibility and long-term security, ensuring you continue to protect yourself and your loved ones. By following the simple steps outlined in this blog, you can make an informed decision about your insurance needs and secure your financial future with confidence.