Deal or no deal: Shop around for life insurance

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Thousands of young, healthy federal and postal workers may be spending way too much -- millions of dollars in total -- for life insurance. They are enrolled in the Federal Employees' Group Life Insurance Program (FEGLI).

Group rates tend to be a good deal for some and a liability for others.

By the same token, thousands of not-so-young or not-so-healthy feds are getting a good deal because of the large pool of people eligible for coverage. The average age of employees is 47 and climbing. Some of them are robust enough to compete in triathlons, while others can't climb a flight of stairs.

The pros of FEGLI coverage, for some people, are many.

Uncle Sam automatically signs up federal employees for basic coverage unless they elect not to take it. Some feds shop around and find they can get the same coverage, at a lower premium, by purchasing an individual plan from a solid company. But a large number discover that FEGLI is a good deal, and in some cases their only option, because they don't have to take a physical to get coverage.

Ed Zurndorfer is a federal benefits analyst and financial planner who lives in Maryland. Many of his clients are active or retired feds. He is an advocate of shopping around. He says many people, especially those younger than 50, can and should switch from FEGLI to an individual plan. But he adds this word of caution: "If you find a better insurance deal outside of FEGLI do not, repeat do not, cancel your FEGLI coverage" until you have been accepted by the outside firm and you have the policy in hand.

If there is an overlap in coverage and you have to pay an extra month's premium to two plans, things could be worse: Call it insurance that you will be insured.

Annuity or life insurance?

Federal civil servants have two annuity choices. One is automatic. It is the lifetime monthly benefit they get upon retirement based on their age, salary and length of service. That benefit is linked to inflation. Employees under the old Civil Service Retirement System get a full cost-of-living adjustment based on the rise in the inflation-tracking Consumer Price Index. Those under the newer Federal Employees Retirement System receive an increase that is one percentage point less than the inflation rate, and only after reaching age 62.

Feds can purchase a second kind of annuity from their Thrift Savings Plan accounts. Financial planner Arthur Stein says the annuity option is generally better for older people. He says that a 60-year-old who purchases a single life annuity with $100,000 from a TSP account can expect roughly $656 per month for life. If purchased at age 70, the monthly annuity would be about $825. If the annuity is purchased at age 80, then the monthly payment, for life, would be about $1,900. Those payments are not indexed to inflation. For more information on the option, go to www.tsp.gov.

• Mike Causey, senior editor at Federal News Radio AM 1050, can be reached at 202/895-5132 or mcausey@federalnews radio.com.