Two Mutually Exclusive FEGLI Features

There are two aspects of the Federal Employees Group Life Insurance (FEGLI) program that are seldom recognized or understood but might be helpful in certain circumstances.

First, you can irreversibly allocate your life insurance benefits to another individual(s). Second, if you have been diagnosed with a terminal illness, you can cash in your Basic insurance. However, these possibilities are legally mutually exclusive. If you choose one, you cannot choose the other.

Assignment of Benefits — You may pass control and ownership of your Basic, Standard Optional, and Additional Optional insurance to any person(s), corporation, or irrevocable trust (with one exception: you may not transfer ownership if a court has released a decree of divorce, annulment, or legal separation stating that your FEGLI benefits must be paid to someone else). You will not be able to cancel your life insurance or alter your beneficiary if you make an irrevocable transfer.

Living Benefits — A living benefit is available to anyone who’s terminally ill and has a life expectancy of nine months or less. It’s an accelerated distribution of Basic life insurance benefits to the policyholder rather than a beneficiary or survivor. Only Basic insurance may be redeemed.

A living benefit may only be chosen once, and that selection cannot be reversed. So, if you select a full living benefit, you’ll cash in your whole Basic policy. If you choose a partial living benefit, you’ll only get a portion of the policy’s proceeds. This may be done in $1,000 increments. You would no longer have to pay premiums if you had a full living benefit. Your premiums will be decreased if you receive a partial benefit. It should be noted that retirees and employees entitled to compensation can only choose full living benefits.

Obviously, if you choose a full living benefit, your survivors will be ineligible for any Basic insurance payout if you die. A partial benefit will entitle them to the balance of your coverage. However, you must understand that the remaining amount’s monetary worth would be frozen. It won’t ever change, even if your wage increases.

If you’re qualified for a FEGLI living benefit, the amount you get will be less than your policy’s face value. That reduction indicates the interest lost to the life insurance fund due to their payment to you ahead of schedule. Since there’s no profit margin in a living benefit, the amount you get is usually more than that given by a viatical settlement company.

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