Unlocking the Power of FEGLI Life Insurance Assignment
Life insurance is a valuable financial asset, providing peace of mind and financial security to policyholders and their loved ones. For federal employees and annuitants, the Federal Employees Group Life Insurance (FEGLI) program offers a unique opportunity to assign their life insurance coverage to someone else. This assignment can have significant implications for their rights and estate planning. In this blog post, we will explore the ins and outs of FEGLI insurance assignment, its effects, and the reasons why individuals may choose to utilize this option.
Understanding FEGLI Insurance Assignment
The FEGLI program is a lifeline for federal employees and annuitants, offering various coverage options, including Basic Insurance Amount (BIA), Option A (Standard), and Option B (Multiple of Salary). However, it’s important to note that Option C (Family Coverage) cannot be assigned. The process of assignment entails relinquishing ownership and control of these coverage options to a designated individual, corporation, or irrevocable trust.
To initiate this assignment, federal employees and annuitants must complete and submit OPM Form RI 76-10 (Assignment Federal Employee Group Life Insurance), which can be downloaded from the official website of the Office of Personnel Management (OPM).
The Irrevocable Decision
One crucial aspect of FEGLI insurance assignment is its irrevocable nature. Once an assignment is made, it cannot be canceled or reversed, even if the policyholder changes their mind. Therefore, it’s essential for individuals to thoroughly consider the implications and weigh the benefits against the limitations before proceeding.
Effects of Assignment on FEGLI Enrollee’s Rights
When an individual assigns their FEGLI insurance, they surrender several significant rights associated with their policy. These include:
1. Cancellation Rights: The ability to cancel FEGLI insurance is forfeited upon assignment.
2. Beneficiary Changes: The policyholder can no longer change their beneficiaries.
3. Conversion to Individual Whole Life Insurance: The option to convert the coverage into an individual whole life insurance policy upon termination is no longer available.
4. Post-Age 65 Reduction Schedule: The assignee may have limited flexibility in changing the post-age 65 reduction schedule for the BIA, depending on the initial election made by the insured at retirement.
FEGLI Reduction Options upon Retirement
Before we delve further into the reasons for FEGLI insurance assignment, let’s discuss the reduction options available to retirees. When a federal employee retires, they have the opportunity to make important decisions about the reduction of their FEGLI insurance:
1. BIA Reduction: Retirees can choose between 75 percent reduction, 50 percent reduction, or No Reduction for their Basic Insurance Amount.
2. Option B Reduction: For Option B coverage, retirees can opt for Full Reduction or No Reduction.
These choices are made at the time of retirement and can have long-term implications for the policyholder and their beneficiaries.
Assignment Flexibility for the Assignee
While the assignor gives up certain rights, the assignee, the recipient of the policy, gains some flexibility in modifying the FEGLI coverage. Specifically:
1. BIA Election: If the retired employee did not select 75 percent reduction initially, the assignee can change this election.
2. Option B Election: Similarly, the assignee can switch the Option B election to Full Reduction if the retiree did not already choose this option.
Reasons to Consider FEGLI Insurance Assignment
Now that we’ve outlined the key aspects of FEGLI insurance assignment, let’s explore why individuals might choose to assign their FEGLI life insurance:
1. Compliance with Court Orders: In situations involving divorce, annulment, legal separation, or property settlement agreements related to these legal proceedings, court decrees may direct FEGLI enrollees to assign their life insurance to specific individuals. While such decrees are not formal FEGLI assignments, they can mandate the assignment process.
2. Estate Planning: Estate and inheritance taxes can be a concern for those with sizable estates. By assigning their FEGLI life insurance, individuals may reduce the value of their estate, potentially minimizing federal and state estate tax liabilities. This strategy can be particularly beneficial when an estate’s value is close to or exceeds the exemption thresholds.
3. Collateral for Loans: A collateral assignment of life insurance can be used to secure loans. This method allows borrowers to obtain more favorable terms and lower interest rates. In the case of federal employees or annuitants enrolled in FEGLI, using their life insurance as collateral can provide a way to access much-needed funds without putting other assets, such as their home or vehicle, at risk.
However, it’s important to note that FEGLI insurance assignments should not be made lightly, especially for loans intended to be fully repaid. The assignment remains in effect permanently, even if the loan is repaid.
In conclusion, the Federal Employees Group Life Insurance (FEGLI) program offers enrollees the unique option to assign their life insurance coverage to others. This assignment can have significant implications for estate planning, legal compliance, and securing loans. However, individuals should carefully consider the irrevocable nature of the decision and weigh the benefits against the limitations before proceeding with an assignment. FEGLI insurance assignment can be a powerful tool when used wisely, providing individuals with additional financial flexibility and estate planning opportunities.
