FEGLI vs. private life insurance: Which is best for you?
I started Insurance Blog by Chris™ because I have a passion for insurance. Here at the blog, our job is to educate and inform people about the best insurance for them.
Since then, we have grown into national brands with a large team of researchers helping people understand all forms of insurance.
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Written by
Chris Huntley
Founder of Huntley Wealth & Insurance Services
Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states.
After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health insu…
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Reviewed by
Rachael Brennan
Licensed Insurance Agent
UPDATED: Apr 15, 2022
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OVERVIEW
•What is FEGLI?
•About private life insurance
•FEGLI vs. private life insurance: Which is best for you?
Life insurance is a guarantee that brings peace of mind for you and your loved ones. Besides having a backup plan in case you’re not there for your family, it also helps to protect your family for decades to come, it can replace lost income, it can help to pay off debt, it can cover funeral expenses, and pay for your children’s college tuition.
That’s why, when you’re a federal employee, you need to understand your options to have the insurance that works best for you. As a federal employee, you have access to FEGLI, that’s the federal government insurance, but you also can have private insurance.
Which is best for you? It makes a difference to select the right insurance according to your unique situation, your budget, and your goals as a family.
In this post, you’re going to learn about FEGLI vs. life insurance, the pros, and cons, what FEGLI is, what private insurance is, and why it matters to know the difference.
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What is FEGLI?
FEGLI means Federal Employees’ Group Life Insurance. The government established this program in 1954 to provide life insurance to federal employees.
When you hear federal employees, you can associate the term with almost any job title because the government employs people in nearly every career field, from nurses to accountants, IT, human resources, transportation, legal, and much more.
Who is eligible for FEGLI?
As a Federal employee, you are eligible to have FEGLI coverage, unless your position is excluded by law. To know your eligibility, you can check out the eligibility section on the Benefits.Gov website.
Pros of FEGLI
With FEGLI, you don’t need a medical exam and you’re guaranteed to be approved because you’re a federal employee. Also, if by law, you are deemed uninsurable, you still have basic coverage to support your family in the case of your passing.
Another good point is that you don’t have to make separate payments to participate in the FEGLI program, as your paycheck is deducted automatically. Unless you opt-out of coverage.
Is FEGLI a good deal?
FEGLI can continue into your retirement and provide no-cost coverage after the age of 65. This is good if you want to live more affordably after you retire. FEGLI will never determine a rate based on your age.
FEGLI can be more affordable to men, due the the life expectancy of women being higher than men. Men often pay more for life insurance in private companies, but not with FEGLI.
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Cons of FEGLIFEGLI has three options: A (standard), B (traditional), and C (family). Because of the structure of FEGLI, you may not get the coverage you need at a cost that you can afford with plans B and C.
FEGLI only offers term life insurance policies. This means the policy won’t accrue any cash value.
FEGLI plans don’t cover any living benefits or offer additional riders. Another con is you can’t take your policy with you when you’re no longer a federal employee because it automatically dissolves and you will lose the money you invested.
Now that you’ve learned about FEGLI’S pros and cons, let’s talk about private insurance.
What is life insurance?
Life insurance acts as a guaranteed contract between an insurer (you) and a company. A life insurance policy agrees to pay money to beneficiaries when the insurer passes in exchange for the amount of money paid as a premium over a lifetime.
You’ve probably heard of private life insurance companies on social media, TV, radio, or anywhere online: Northwestern Mutual, Progressive, Allstate, State Farm, GEICO. But those are not the only ones. There are at least 5,929 insurance companies in the United States. Each company is a private company that offers policies specifically targeted to your needs, your occupation, and your lifestyle, not to mention your zip code.
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Who can apply for life insurance?
You can apply for life insurance now. Keep in mind that some life insurance companies don’t require medical exams and others do. The ones that request a medical history usually ask for your family’s medical history, blood pressure, heartbeat, height and weight, blood sample, urine sample, and lifestyle (exercise, smoking, drinking, recreational drug use, frequent travel, and high-risk hobbies).
Pros of Private Life Insurance
What are the pros?
Private life insurance is permanent. As long as you keep up paying your premiums, your policy can last a lifetime. Private life insurance offers tax breaks. Your cash value in a policy grows deferred of tax and the death benefits are usually not taxable.
Private life insurance may be used as a loan collateral. This can be useful for a financial emergency or if you have exhausted all your borrowing options.
Is private insurance a good deal?
Remember that private life insurance can be whole (lasts your entire life), universal, and variable. Permanent private insurance is the most widely purchased type of life insurance in the United States.
Traditional whole life private insurance is the oldest and best known type of private insurance.
Cons of Private Life Insurance
Private life insurance can be expensive. This makes sense because your premium is a fund that acts as cash value. Private life insurance offers a small death benefit. In the case you have a young child that depends on your income, you may need more insurance, and still have a lower death benefit.
Private life insurance is not exactly a business investment. It works only if you’re an active investor and you like to take high risks with a variable policy.
Compare
FEGLI
Private Insurance
PROS
With FEGLI, you don’t need a medical exam.
Also, if by law, you are deemed uninsurable, you still have basic coverage.
Another good point is that you don’t have to make separate payments to participate in the FEGLI program.
Private life insurance is permanent.
Private life insurance offers tax breaks.
Private life insurance may be used as loan collateral.
CONS
Because of the structure of FEGLI, you may not get the coverage you need at a cost that you can afford with plans B and C.
FEGLI only offers term life insurance policies.
FEGLI plans don’t cover any living benefits or offer additional riders.
FEGLI pricing can be a great benefit to men and be more affordable because of this.
Private life insurance can be expensive. Private life insurance offers a small death benefit.
Private life insurance is not exactly a business investment.
Why it matters to know the difference?
It’s important to know the difference between FEGLI and private life insurance because if you keep FEGLI, your premiums may be higher, your retirement may be decreased over time, you may lack cash value, you could be stuck with only term life insurance, you could lose your insurance policies if you lose your job as a federal employee, you could lose privilege and riders, and your coverage limits may be low.
Private life insurance, on the other hand, may result in a more expensive deal, you could have family benefits reduced, and you could lack investment control in your insurance policy.
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Bottom Line
After learning about the pros and cons of FEGLI and private life insurance, you can see why it matters to know the difference. This information can help you make the best insurance selection for your specific needs.
